The proposed regulations issued Tuesday, August 4 by the Virginia Bureau of Financial Institutions (BFI) confirm that payday lenders continue at every turn to avoid regulation. The Center for Responsible Lending applauds BFI for providing guidance and oversight of this industry, particularly when the legislature has allowed so many loopholes. The proposed regulations will:
- Prevent the industry's practice of avoiding state laws and regulation under cover of affiliate relationships.
- Prevent the industry from avoiding the 2008 and 2009 reforms by adding ancillary products such as life insurance to the cost of the loan.
- Prevent faux car title loans that have been pushed by the payday loan industry.
- Require that all companies making auto loans follow the same filing rules.
- Prevent check cashers from making payday loans.
Unsatisfied with the 300 percent APR that resulted from the General Assembly's minor reforms of 2008, within months of the changes, payday lenders began steering customers away from the traditional payday product toward an open-end loan product, typically a $750 loan with interest rates even higher than a payday loan – and completely unregulated. The industry was able to introduce this new product because Virginia has no underlying small loan interest rate cap.
In 2009, the Virginia legislature sought to close this loophole by passing a law that prohibits payday loans and open-end loans from being made by payday lenders. However, in an effort to protect car-title lenders, the legislature created a carve-out for that industry, allowing predatory practices to continue in the Commonwealth. Within days, payday lenders began marketing these same open-end products as "car-title" loans.
Consumer lending issues will again return to the 2010 Virginia General Assembly. The Center for Responsible Lending strongly advocates the only reform that has proven effective against predatory small dollar lending is a 36 percent interest rate cap for all small dollar lending in the Commonwealth. Virginia will not need to continue its patchwork payday reforms or create a separate, car title authorization statute when it has a reasonable double-digit small loan interest rate cap in place.
For more information: Charlene Crowell at (919) 313-8523 or firstname.lastname@example.org.