Va. lawmakers pass car title lending reform

By Dena Potter

RICHMOND

Car title lenders could continue to charge high interest rates but would be limited in how much they could charge and how much they could lend borrowers under provisions that passed out of the General Assembly on Thursday.

The Senate voted 36-4 to agree with changes to the bill made in the House, sending it to Gov. Bob McDonnell. The governor can either sign the bill, make changes to it or veto it.

The legisla would put a one-year limit on the loans, set up a maximum interest rate and require the lenders to be licensed.

Currently the lenders are unregulated, charge more than 300 percent annual interest and can repossess a borrower's vehicle if he falls behind on the payments.

Supporters said the reforms would protect borrowers from an endless cycle of debt while stopping short of running the lenders out of the state.

"I told the title lenders, if you don't want the front of your place looking like a used car lot, don't make loans to people who can't repay them," said Senate Majority Leader Richard Saslaw. "This also tells the people who are going to borrow that you need to understand that if you don't make these payments you will lose your car, but you won't be making payments forever."

Saslaw cited the example of a Harrisonburg man who took out a $1,500 car title loan, paid $380 per month for about a year, and after paying more than $4,700, he still owed the $1,500 principle.

In Saslaw's bill, lenders could charge 15 percent to 22 percent per month, depending on the amount of the loan. The companies could not lend more than 50 percent of the vehicle's value, and borrowers must own the car.

It would require the loan be repaid in full within one year, and at least 8.25 percent of the principle must be paid each month. Saslaw said those provisions would put a stop to endless payments that never reduce the amount that is owed.

The House changed the bill to allow lenders to continue to charge interest on those who were in default for more than 60 days if they tried to hide the vehicle. It also would require the lender to pay for the cost of repossessing and storing a vehicle if it does not give borrowers a 10-day written notice that it planned to take the vehicle. If a notice was given, that cost would fall to the borrower.

Although the lenders aren't currently regulated in Virginia, industry representatives said there are about 130 car title lenders in the state.

The industry donated more than $190,000 to candidates over the past year.

Scott Johnson, an industry lobbyist, said car title lenders support the compromise. He said many of the changes codify the best practices of the industry.

"Although we are disappointed in the very high interest rate cap, we think this is a significant improvement," said Jay Speer, executive director of the Virginia Poverty Law Center.

If signed by McDonnell, the law would take effect Oct. 1.