- The Washington Times - Tuesday, June 30, 2009

RICHMOND | Only about 5 percent of borrowers who fall behind in repaying their car-title loans lose their vehicles, a lawyer representing several of the high-interest lenders told a legislative panel studying the industry Monday.

It was the panel’s first meeting, but because the lenders are unregulated in Virginia, legislators must rely on attorney Dewey Morris and other industry representatives for basic information about the businesses. Nobody knows how many title lenders operate in Virginia or how many loans they issue each year.

Car-title lenders operate under various laws in about half the states. In Virginia, they fall under the state’s open-end-credit law, which allows them to charge whatever they want as long as they don’t assess finance charges or other fees for the first 25 days.

Mr. Morris said that about a quarter of those who take out loans repay the entire thing in those first 25 days and are not charged interest.

Borrowers give over the title to a car they own and a copy of their keys in exchange for a loan that is usually up to half the car’s value. The lenders charge about 300 percent to 350 percent annual finance charges, and if the borrower falls behind, the lender repossesses the vehicle, often selling it at auction or charging the borrower costly fees to get it back.

Industry opponents have asked legislators to cap the interest the lenders can charge at 36 percent annually, but legislators put off the issue to give the committee a chance to study it this summer.

“I think the question is: ‘Do we need to regulate it?’ The answer’s probably ‘Yes,’ ” Mr. Morris told the seven legislators. “We need to do it in a way that will permit these folks to still be able to get loans.”

Mr. Morris and other industry supporters argue that the people who rely on car-title loans typically can’t get traditional credit and can’t sell their cars because they need them to get to work.

It’s that dependence on their vehicles that keeps people paying even after they’ve realized they are trapped in debt, said Jay Speer, executive director of the Virginia Poverty Law Center.

Because of the triple-digit interest rates, a person could take out a $1,000 loan, pay $250 per month for six months and still owe the original $1,000, he said.

“People do need money, there’s no questions about that, particularly in these tough economic times,” Mr. Speer said. “But to saddle people with 300 percent interest loans, in our mind, is not the solution.”

Joe Face, commissioner of the state Bureau of Financial Institutions, said his agency has received more than 260 complaints against car-title lenders in the past five years, but he has no authority over them. The attorney general’s office has prosecuted about a dozen lenders for various violations.

Mr. Speer and others argue that if legislators create a law to regulate the lenders, it will legitimize them as it did payday lenders. In 2002, legislators passed a law regulating the industry, and within years, there were more than 800 stores and calls to crack down on the lenders because people were getting trapped in debt by the short-term, high-interest loans.

Instead, industry opponents would like legislators to require that title lenders operate under laws that regulate other consumer loans that also cap what they can charge.

The group will meet again in September to hear a report about what has happened in Tennessee since it began regulating car-title lenders in 2005.

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