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New Virginia Law Limits Title Loans

For years, payday and car title lenders in Virginia could charge borrowers exponentially higher interest rates than lenders in other states. As a result, Virginia has among the highest vehicle repossession rates in the county.

A new law in the commonwealth aims to curb predatory lending practices by limiting the annual rate of interest to 36% plus a monthly service fee. By comparison, the current average annual rate is 251% for payday loans and 217% for title loans.

Lawmakers held a ceremonial bill-signing for the Virginia Fairness in Lending Act Monday in Richmond.

“There is no more important time for this piece of legislation,” Gov. Ralph Ncomortham said at the bill-signing, citing the Virginians who have lost their businesses or jobs this year due to the coronavirus pandemic.

Northam successfully pushed for the law to go into effect on January 1, 2021, rather than the following July. At the bill-signing ceremony, he called the former rates of return for lending companies “out of control.”

The new law, passed by the Virginia General Assembly earlier this year, includes several measures that aim to protect Virginians from predatory lending practices. Under the current system, lenders can charge excessively high interest rates and often trap borrowers into debt.

The commonwealth has long been seen as a sanctuary for predatory lenders, despite previous legislation that aimed to curb the practice. According to the Virginia Poverty Law Center, Virginia has some of the weakest consumer protections in the country. (The law center helped draft the legislation.)

Car-title loans are often a last resort for economically vulnerable residents who do not have good enough credit to qualify for credit cards.

As part of a car-title loan, people sign over the title to their vehicles in exchange for quick cash at interest rates that often soar above 200%. Car-title lending is not legal in D.C. or Maryland, leading the industry to flourish in border towns and cities.

The new law requires lenders to look up prospective borrowers’ eligibility in a database. It also prohibits loans to borrowers with outstanding short-term loans.

“Persistence is a good thing,” said Sen. Mamie Locke (D-Hampton), the bill’s patron in the Senate. She said she’s been pushing for short-term lending reform since 2007. “The road to bringing about real change for Virginia took years,” she said.

The legislation had broad support from Virginians, according to a poll conducted by the Wason Center for Public Policy last November. Seventy-two percent of Virginia voters polled said they support or strongly support a proposal to cap the interest rates on payday and title loans at 36% percent.

“This one was a heavy lift,” said Del. Lamont Bagby, who sponsored the bill in the House. “I’m so pleased this will be the law of the land in just a few months.”

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