Well, well, well. We are supposed to feel really good because on October 1 Virginia is finally going to “regulate” car title lenders, those leeches who give some poor guy down on his luck money in return for the title to his vehicle, which they can then repossess and sell at auction when the poor guy can’t pay the exorbitant interest rate charged on the loan. To call the law that passed in Virginia regulation is a joke. There is absolutely nothing in it for the lenders to worry about. Why should there be? They helped write it, but more on that later.
The bill introduced by Dick Saslaw (D-Springfield) to regulate car title loans still means that companies in that sleazy business can charge interest of 22% per month on the outstanding balance of a loan for $700 or less. Plus, the law puts no cap on the size of the loans. Lenders are at least barred from continuing to charge interest on a loan after they repossess a vehicle or going to court to seek a “deficiency judgment” after they take someone’s vehicle and sell it.
According to Richmond Sunlight,
Under this measure, if the loan balance is not paid in full within a 25-day grace period (in which case interest does not accrue), interest shall not exceed 22 percent per month on the portion of the outstanding balance of the loan that does not exceed $700; 18 percent per month on the portion between $700 and $1,400; and 15 percent per month on the portion that exceeds $1,400. There is no cap on the size of such loans. Money advanced under the loan agreement is required to be repaid in monthly payments over the 12 months following an advance.
Perhaps an actual example can show us just what a scam this kind of loan is.
Let’s say you go and get a $600 loan and relinquish the title to your car to get it. Under the new regulations, the loan company can charge you 22% interest per month on the outstanding balance. Before you walk out the door with your $600, you already owe $732 when your first payment comes due. Let’s say you pay $200 at the start of the next month. That brings the loan down to $532, right? No. That brings the loan down to $532 plus 22% interest, or $649.04 by the time you make your next payment.
Your second payment of $200 should bring you down to $449.04, right? No. The actual outstanding amount now is $547.83. Your third payment of $200 the following month means that you have paid back the original loan, the amount of money you actually got. However, you still own $424.35. Put another way, you didn’t get a loan for $600. That loan was for $600 minus all that interest, which will add up to far more than $600 by the time you are able to get out of the clutches of the car loan sharks.
The new Virginia law says that the car title people are supposed to explain to a potential “customer” the actual cost of the loan. We all know all the ways for a lender to get around that little detail, especially since the lender is dealing with somebody obviously desperate for money. Never forget one fact, though. Anyone who gets a car title loan is actually selling that car to the loan shark, in the hopes of someday being able to buy it back at far, far more than the amount of the loan.
These title loan companies get rich by preying on the misfortune of others because they know most of their clients probably won’t be able to pay back the loan. Even if the car loan was at a reasonable interest rate, the people offering the loan aren’t taking a chance at all. They have in hand from day one the ownership of – and keys to – a vehicle that they got for much less than its blue book value, one that is being insured by the person who in effect no longer owns the vehicle. The borrower even pays the administrative cost of making the loan, through an origination fee. Such loans are a sure-fire way for the lenders to make a fast buck. They can’t lose.
Who would risk the title to their car except someone desperate? The lenders make it sound like they are helping with the misfortunes of life, but actually they are making a fortune at the expense of the unfortunate. The law passed in Virginia does absolutely nothing to rein in these despicable loans. So, how did we get such a crappy law? The way we always seem to – let the regulated and their highly paid lobbyists write the regulations.
According to Bloomberg Businessweek “For years the industry fended off calls for tougher regulation. Since 2005, six companies and industry groups have donated nearly $1.2 million to Virginia lawmakers as legislation to regulate the industry languished in committees. Last year, the industry and its opponents worked with legislators on the compromise.”
Evidently, that’s how regulation works in the Old Dominion, the land of unlimited campaign contributions. The industry that needs to be controlled sits down with the people who are going to write the legislation, and they come up with a metaphorical fig leaf that gives cover to both groups. Legislators can say they “regulated” a bad business. The businesses can chuckle to themselves because they get a “two-fer:” they essentially get to write their own regulations, plus they don’t have to put out all that money in campaign contributions any more. Well, except for the thank-you money to the compliant lawmakers who participated in the whole deal. But, remember. It’s not bribery. It’s just getting “access.”