Nice work by Senator-elect Scott Surovell, this time on the immoral predatory lending industry. Let’s hope these bills all pass, although of course Republicans will likely be a problem as usual…
Mount Vernon, VA – Today, Senator-Elect Scott Surovell (D-36), filed four bills to close loopholes and protect consumers from predatory lenders. The bills will protect financially vulnerable Virginians from predatory lending practices by capping interest rates on largely unregulated consumer finance loans, close a loophole that title lenders could use to make predatory loans, prohibit car title and consumer finance lenders from co-locating, and enhancing reporting requirements for consumer finance lenders that co-locate with car title lenders. The bills have the support of Attorney General Mark R. Herring, who has stood with Sen. Surovell to raise awareness of the dangers of predatory lending and has announced a reorganization of his office’s Consumer Protection Section to include a focus on combatting predatory lending. The 36th Senate District has nearly two dozen car title lenders mainly concentrated on the U.S. 1 Corridor between I-495, Fort Belvoir, and Marine Corps Base Quantico.
“What we have here is an industry that’s been booming since their legalization in 2011. Right now, there are 21 predatory lenders located along the U.S. 1 corridor and more will soon be opening unless we, as a legislature, are proactive and respond to this epidemic. The legislation that I’m introducing plans to address this by limiting these businesses and ensuring the economic safety of our state’s most vulnerable,” said Senator-Elect Surovell.
“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 Attorney General 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.”
In 2010, the Virginia General Assembly passed SB 606 that capped loan terms at one year a rate of 30% per month or an annual percentage rate of 264%. One year later, the Virginia General Assembly passed SB 1367, which allowed car title loan companies to grant title loans to nonresidents of Virginia by one vote. After passage, the number of car title lenders near Virginia’s borders exploded and Virginia saw a statewide surge in car title loan locations. Today, car title lenders operate four hundred and seventy-four locations across Virginia and twenty-one locations between I-495, Fort Belvoir and Marine Corps Base Quantico along U.S. 1.
Recent media attention, including a five-part series by WAMU radio reporter Michael Pope in Northern Virginia, has focused the public on the abuses occurring in this industry, and loopholes in existing law that car title lenders have exploited to evade consumer protections negotiated into the law in 2010.
Senator-Elect Surovell also campaigned on this issue. A copy of his ad can be viewed here:
Several civic groups in eastern Fairfax County have called for action to restrict these businesses. Fairfax County, Chesterfield County and the City of Manassas have passed zoning ordinances restricting locations for car title lenders.
Senator-Elect Surovell has introduced four bills to address these issues and other financially vulnerable consumers. First, Surovell will introduce legislation capping interest rates for consumer finance loans at an annual percentage rate of 36%. Recently, one car title lenders – TitleMax – incorporated a wholly-owned subsidiary called TMX Finance of Virginia that it licensed as a consumer finance company. Consumer finance companies have existed in Virginia since 1918 and are reputable businesses, but have fewer limitations on loan products. TitleMax co-located its consumer finance subsidiary at ninety-three title loan locations and has pushed customers into unregulated consumer finance products instead of more tightly regulated car title loan products. Receivable amounts from consumer finance loans jumped from $350 million in 2013 to $489 million in 2014, an increase of 40%, while total loans only increased 16%. This legislation would end the outrageously high interest rates currently enforced on vulnerable borrowers.
Second, Senator-Elect Surovell has introduced legislation prohibiting car title lender subsidiaries from utilizing open-end credit agreements. In 2009, payday lenders were prohibited from using open-end credit plans. In 2010, car title lenders were prohibited as well. However, there are no law prohibit a car title lending company from using a consumer finance company subsidiary from making and unsecured open-end credit loan. “This legislation closes another loophole available to car title lenders to foreclose another round of legislative whack-a-mole,” said Senator-Elect Surovell.
Third, in the event the legislature does not restrict consumer finance lending rates, Senator-Elect Surovell has introduced legislation prohibiting car title lenders from sharing the same storefront with a separately licensed consumer finance company. Borrowers have previously been pushed into entering these consumer finance company products when they originally sought a car title loan, putting them in an even more difficult situation with a loan they did not want and may not understand. Currently in Virginia, over 100 consumer finance loan and car title loan locations share an address. This legislation will bar companies from sharing addresses so customers can know exactly what type of loan they are taking.
Lastly, in the event co-location is allowed to continue occurring, Senator-Elect Surovell has introduced legislation requiring consumer finance companies that co-locate with car title lenders to file annual reports detailing the same information that car title lenders are required to report on an annual basis such as the number of vehicles repossessed following loan defaults as well as the existing required car title lender information in annual reports. “This business is different and more profitable than all of the others because they’re not regulated and not required to file the same paperwork as car title lenders,” said Senator-Elect Surovell. “They loaned out three times what car title lenders did [in 2014] with no oversight, no regulation, and no protection for their customers.” This legislation would shed light on how consumers are affected by these loans and allow people looking for loans to evaluate their options.
The four bills Senator-Elect Surovell has introduced are attached, but have not been assigned bill numbers yet.
Other legislation has already been introduced this session and is expected including legislation to prohibit car title lenders from locating in close proximity to casinos and military bases.
INTEREST RATE CAPS ON CONSUMER FINANCE LOANS
Consumer finance loans; rate of interest. Caps the maximum rate of interest that a licensed consumer finance company may charge on any loan at 36 percent annually. The measure eliminates the existing provision that permits such licensees to charge any agreed-upon amount of interest on consumer finance loans over $2,500. The measure also limits the late charge that a licensee may charge to the lesser of $20 or five percent of the unpaid installment. Currently, such late charges may not exceed five percent of the unpaid installment. Finally, the measure extends the grace period that must elapse before a late charge may be assessed from seven to 10 calendar days.
A BILL to amend and reenact § 6.2-1520 of the Code of Virginia, relating to charges by consumer finance companies.
Be it enacted by the General Assembly of Virginia:
1. That § 6.2-1520 of the Code of Virginia is amended and reenacted as follows:
§ 6.2-1520. Rate of interest; late charges; processing fees.
A. A licensee may charge and receive interest on loans of:
1. Not more than $2,500, at a single annual rate not to exceed 36 percent; and
2. More than $2,500, at such single annual rate as shall be stated in the loan contract. The annual rate of interest shall be charged only upon principal balances outstanding from time to time. Interest shall not be charged on an add-on basis and shall not be compounded or paid, deducted or received in advance. For the purpose of calculating interest under this section, a year may be any period of time consisting of 360 or 365 days.
B. A licensee may impose a late charge for failure to make timely payment of any installment due on a debt, which late charge shall not exceed five percent of the amount of such installment payment. The late charge shall be specified in the loan contract between the lender and the borrower. For purposes of this section, “timely payment” means a payment made by the date fixed for payment or within a period ofseven calendar days after such fixed date.
C. A licensee may charge and receive a processing fee, charged on the principal amount of the loan, for processing the loan contract. The processing fee shall be stated in the loan contract. Such processing fee shall be deemed to constitute interest charged on the principal amount of the loan for purposes of determining whether the interest charged on a loan of not more than $2,500 exceeds the 36 percent annual interest rate limitation imposed by subdivision A 1.
OPEN-END CREDIT AGREEMENTS- LIMITING TO BONA FIDE PURCHASES
Open-end credit agreements. Allows only sellers of goods to be used for personal, family, or household purposes to extend credit under an open-end credit agreement. Such extensions of credit may be made only to the purchaser of the goods for the sole purpose of financing the bona fide purchase price of such goods.
A BILL to amend and reenact § 6.2-312 of the Code of Virginia, relating to open-end credit plans.
Be it enacted by the General Assembly of Virginia:
1. That § 6.2-312 of the Code of Virginia is amended and reenacted as follows:
§ 6.2-312. Open-end credit plans.
A. Notwithstanding any provision of this chapter other than § 6.2-327, and except as provided in subsection C, a seller or lender engaged in extending credit under an open-end credit plan may impose, on credit extended under the plan, finance charges and other charges and fees at such rates and in such amounts and manner as may be agreed upon by the creditor and the obligor, if under the plan a finance charge is imposed upon the obligor if payment in full of the unpaid balance is not received at the place designated by the creditor prior to the next billing date, which shall be at least 25 days later than the prior billing date.
B. Notwithstanding the provisions of § 6.2-327 and subject to the provisions of § 8.9A-204.1, any loan made under this section may be secured in whole or in part by a subordinate mortgage or deed of trust on residential real estate improved by the construction thereon of housing consisting of one- to four-family dwelling units.
C. (i) A licensee, as defined in § 6.2-1800, shall not engage in the extension of credit under an open-end credit plan described in this section and, (ii) a third party shall not engage in the extension of credit under an open-end credit plan described in this section at any office, suite, room, or place of business where a licensee conducts the business of making payday loans. In addition to any other remedies or penalties provided for a violation of this section, any such extension of credit made by a licensee or third party in violation of this subsection shall be unenforceable against the borrower.
D. No person shall make a loan or otherwise extend credit under an open-end credit plan or any other lending arrangement that is secured by a non-purchase money security interest in a motor vehicle, as such term is defined in § 6.2-2200, unless such loan or extension of credit is made in accordance with, or is exempt from, the provisions of Chapter 22 (§ 6.2-2200 et seq.).
E. If a licensee, as defined in § 6.2-1800, surrenders its license under Chapter 18 (§ 6.2-1800 et seq.) or has its license revoked, and if following such surrender or revocation of its license the former licensee engages in the extension of credit under an open-end credit plan as described in this section, then the Commission shall not issue to such former licensee, or to any affiliate of the former licensee, a license under Chapter 18 (§ 6.2-1800 et seq.) for a period of 10 years from the date such license is surrendered or revoked. As used in this subsection, “affiliate of the former licensee” means a business entity that owns or controls, is owned or controlled by, or is under common ownership or control with, the former licensee.
CO-LOCATION OF CAR TITLE LENDERS AND CONSUMER FINANCE COMPANIES
Motor vehicle title lenders; consumer finance companies. Narrows the exemption for consumer finance companies from laws regulating motor vehicle title lenders. The bill subjects a consumer finance company to provisions governing business methods, interest and other charges, monthly payments, loan terms, limited recourse, repossession and sale of a motor vehicle, and advertising if the company makes a loan that is (i) secured by a non-purchase money security interest in a motor vehicle and (ii) offered or made at an office, suite, room, or other place of business where a licensed motor vehicle title lender conducts the business of making motor vehicle title loans.
A BILL to amend and reenact § 6.2-2202 of the Code of Virginia, relating to motor vehicle title lenders; application to consumer finance companies.
Be it enacted by the General Assembly of Virginia:
1. That § 6.2-2202 of the Code of Virginia is amended and reenacted as follows:
§ 6.2-2202. Scope of chapter.
A. The provisions of this chapter shall not apply to any bank, savings institution, or credit union, or to a person licensed under Chapter 15 (§ 6.2-1500 et seq.), that does not elect to become licensed under this chapter. Electing to become licensed under this chapter, however, shall constitute a waiver of the benefit of any and all laws of the Commonwealth and other states, territories, possessions, and districts of the United States and federal laws preemptive of, or inconsistent with, the provisions of this chapter.
B. The provisions of this chapter shall not apply to extensions of credit for the sole purpose of financing the purchase of a motor vehicle, or of refinancing a purchase money loan, secured by a lien on the motor vehicle.
ANNUAL REPORTING OF CONSUMER FINANCE COMPANIES
Consumer finance companies; annual reports. Requires any consumer finance company that shares a location with a licensed motor vehicle title lender to file an annual report with the State Corporation Commission (SCC) that provides (i) information on the number of motor vehicles repossessed by the consumer finance company following a loan default by the borrower and (ii) the same types of information that the licensed motor vehicle title lender is required to include in its annual report to the SCC.
A BILL to amend and reenact § 6.2-1534 of the Code of Virginia, relating to annual reports by consumer finance companies; motor vehicle title loans.
Be it enacted by the General Assembly of Virginia:
1. That § 6.2-1534 of the Code of Virginia is amended and reenacted as follows:
§ 6.2-1534. Annual reports.
Each licensee shall annually, on or before April 1, file a report with the Commission giving such relevant information as may reasonably be required concerning its business and operations during the preceding calendar year as to each authorized consumer finance company office. Reports shall be made under oath and shall be in the form prescribed by the Commission.