Car title lending regulations pass Va. Senate committee

By Dena Potter

RICHMOND

Car title lenders would be limited in how much they could lend and charge borrowers under a set of regulations that cleared a Senate committee Monday.

The Senate Commerce and Labor Committee voted unanimously in favor of a set of regulations that would put a one-year limit on the loans, set up a maximum interest rate and require the lenders to be licensed.

The lenders are unregulated in Virginia. Borrowers hand over the car title and a copy of the car keys in exchange for a loan. The lenders typically charge more than 300 percent interest and can repossess the borrower's vehicle if he falls behind on the payments.

The full Senate is expected to vote on the bill Tuesday. It could face tougher scrutiny in the GOP-controlled House of Delegates.

"It brings some semblance of order and regulation to an industry that right now is simply not being regulated and can do pretty much whatever they please," said Senate Majority Leader Richard Saslaw, the bill's sponsor.

Advocates have called for regulation and caps on the amount of interest that can be charged. The lenders have said some proposals — especially interest rate caps — would put them out of business.

The bill would do the following:

—Require repayment of the loan within one year. Currently, there is no end date for the loan to be repaid.

—Prohibit lenders from loaning more than 50 percent of the vehicle's value, something that most already do.

—Require that the vehicle be owned outright, with no other liens outstanding. Most already do that.

—Require at least 8.25 percent of the principal be paid each month, along with interest. Currently, borrowers could pay for months without paying any of the principal. For instance, a person could take out a $1,000 loan, pay $250 per month for six months and still owe the original $1,000.

—Bar lenders from continuing to charge interest after the vehicle has been repossessed.

—Require lenders give borrowers a five-day written notice before repossessing their vehicle.

—Allow lenders to charge 22 percent monthly interest on the first $700 borrowed, 18 percent on the next $700 and 15 percent on the remainder of the loan. For example, a $2,100 car title loan would come to about 228 percent interest per year.

"Even though they're paying ungodly high interest rates, at least they'll know what their payments are," said Jay Speer, executive director of the Virginia Poverty Law Center.

Speer, an outspoken car title lending opponent, called the bill a step forward.

Scott Johnson, an industry lobbyist, said the regulations could cause lenders to repossess more vehicles.

Saslaw said he wanted lenders to consider that when they agreed to make the loan.

"I want them to think twice before they loan money to people who aren't going to pay it back, and I want the people who are borrowing money under a car title to know that if you don't make the payments you're going to lose your car," Saslaw said.

The committee shot down tougher restrictions, including a bill that would have capped the annual interest rate the lenders could charge at 36 percent.