Clamp down now on car title lenders

With payday lenders facing new, albeit modest, restrictions this year, another group of predatory lenders known as car title lenders has concluded that Virginia is a land of lucrative opportunity.

State leaders should return the favor and view title lenders as an opportunity, a chance to avoid the mistakes they made with payday lenders.

Because car title lenders are unregulated, no one knows exactly how many exist in Virginia. Religious and consumer protection groups have identified 113 through Google and online Yellow Pages searches.

Like payday lenders, title lenders offer small loans with high interest rates of 25 to 30 percent per month. Borrowers turn over the title to their vehicle and a set of keys as collateral on the loan. If they pay only the minimum amount each month, the interest accrued can reach double the original amount of the loan within six to eight months. If borrowers fall behind on payments, they can lose their car or truck.

Title lenders insist they want to be regulated by the state. Their proposal would give their businesses legitimacy in Virginia without any limits on their ability to bilk customers.

If this all sounds horribly familiar, it should. In 2002, payday lenders offered a similar self-serving deal, and legislators took the bait. Many lawmakers sincerely believed they were imposing real regulations on the industry, but they failed to include a 36 percent interest rate cap.

The number of payday locations in Virginia exploded, from 377 in 2002 to 832 at the end of 2007. They charged customers the equivalent of more than 300 percent annual interest. They made loads of money and wrote generous checks to state legislators. The top three payday lenders in Virginia have given $370,700 in political donations since 2002, according to the Virginia Public Access Project.

Some lawmakers almost immediately regretted their votes, but they delayed action, allowing payday lending to get embedded in the fabric of the state’s economy. It has taken years for the legislature to muster the courage to admit the mistake and try to fix the problem. Even the new restrictions adopted this year fall short of the needed 36 percent interest cap.

Title lenders have been quick studies on the value of campaign giving, and they are already one step ahead of their payday cousins. Loan Max, the largest of the state’s title lenders, has given more than $530,000 since 2002, more than any payday lender. Its gifts are almost evenly split among Democrats and Republicans, ensuring the company of friends in both parties.

There is a simple way for legislators to regulate car title lenders without giving the state’s blessing to exorbitant interest rates. The General Assembly should simply pass a law clarifying that title lenders fall under the Consumer Finance Act, which already caps annual interest rates at 36 percent for most small loans. There is no reason for title lenders to be exempted.

Last week, the religious and consumer advocates who have struggled to reform payday lending held a press conference to highlight the abuses of title lenders. After David Knott of Edinburgh explained how he lost his truck because of a $1,200 title loan, he declared, “God bless America. Don’t take advantage of people.”

It should be that simple, and in fact it can be. Instead of passing a convoluted law full of loopholes, legislators should learn from the past and adopt a clear requirement that title lenders abide by a 36 percent annual interest rate cap. They have a chance to get it right this time.