A Virginia lawmaker is targeting what he calls predatory lending practices associated with car title loans with annual interest rates that can reach 264 percent.
WASHINGTON — A Virginia lawmaker is targeting what he calls predatory lending practices associated with car title loans with annual interest rates that can reach 264 percent.
“It’s pretty much government-authorized and -sanctioned loan-sharking. But, that’s what’s allowed in Virginia,” says Sen.-elect Scott Surovell. ”
“A normal loan — a loan that most people would get — is premised on your ability to pay. Predatory loans are premised on their ability to collect and nothing else.”
Surovell filed four pieces of legislation Thursday to change laws that he says allow car title lenders to benefit from loans negotiated by side businesses they set up — consumer finance companies that aren’t subject to the same regulations as regular title lending companies.
Compared to the title lending companies, consumer finance companies can offer loans over longer periods of time for larger amounts.
A loan from a title lending company can’t be for more than half what a car is worth, and loan defaults result in a consumer losing his car. Consumer finance companies are allowed to sue, and their loans are not covered by the Fair Debt Collection Practices Act.
“Ideally, if we cap out the consumer finance loans at 36 percent, the car title lending companies won’t use them anymore, because their whole profit model is premised on being able to lend people money at 264 percent interest.”
Surovell says one of the more egregious offenders is Virginia’s largest car title lender, Title Max, which created a new company called TMX Finance, Inc. to operate as a consumer finance company.
WTOP has reached out to Title Max for comment and is awaiting response.
Surovell tried to create legislation on this issue in his years as a state delegate, but his proposals failed.
“These companies are very well connected,” Surovell says. “They have great lobbyists. They spend a lot of money on campaign contributions.”
In an op-ed in the Falls Church News-Press last October, Surovell explains how a regulatory change in 2010 prompted an explosion of predatory loans in Virginia in recent years.
Virginia is becoming known as the predatory lending capital of the East Coast, Attorney General Mark Herring says.
“Too many Virginians go to these lenders seeking a financial lifeline, and instead find themselves trapped in a debt cycle that can turn a few hundred dollars’ worth of loans into thousands of dollars and years of debt,” said Herring.
“As Attorney General, I am working to crack down on lenders who break our laws and exploit consumers, but it’s clear that enforcement of the current laws will only go so far. We need additional reforms like the ones senator-elect Surovell and I are proposing to close loopholes and offer additional protections for financially vulnerable Virginians.”