Quick cash loans under scrutiny in Virginia

by Shelton on January 27th, 2016

filed under Cash Advances

Marty Williams needed to pay off a loan quickly, and had his choice of 10 Lynchburg businesses that would copy his car’s keys and take its title in exchange for money.

He used the cash to settle a years-old $150 loan from another lender after callers threatened jail time in March 2015 if he didn’t pay the $400 they said he owed in interest, he said.

The disabled 52-year-old lives with his wife in Lynchburg and receives monthly Social Security checks of about $850. He called friends and family for a lifeline.

“They didn’t really have money,” Williams said.

Payday lending was legalized in 2002, giving Virginians a quick cash fix with minimal credit checks, but consumer advocates say it can prey on the poor.

The General Assembly is expected to take up several bills designed to tighten payday and title lending industry regulations in its upcoming session.

“It’s a statewide problem,” said Sen. Scott Surovell, a Democrat elected in November to the seat that includes eastern Fairfax, Prince William and Stafford counties. “And every time I get off I-81 it seems like I see four car title lenders.”

Virginia Attorney General Mark Herring and Gov. Terry McAuliffe have vowed to support new rules.

Products require high interest rates

Payday loans are unsecured cash advances up to $500 where borrowers get no grace period and are generally required to repay the loan in two pay periods.

Instead of risking overdraft charges as high as $35, people opt for payday loans generally costing about $15 for every $100 borrowed, said an email from Amy Cantu, a spokeswoman for the Community Financial Services Association of America. The national organization represents more than 40 payday loan companies.

If interest rates were capped at 36 percent annual interest, fees on a two-week $100 loan would be $1.38.

Advocates in the title and payday lending industries argue high interest rates are necessary, because of the product’s short-term nature.

“Consumers use payday loans to get through a financial pinch,” Cantu said.

Borrowers repaid payday loans in an average of 45 days in 2014, according to State Corporation Commission reports on payday and car title lenders.

Title loans typically mature in 12 months and use a borrower’s vehicle title as collateral.

Across Virginia, payday and title lenders provided roughly a quarter-million people with loans in 2014, the SCC report said.

Annual interest rates on payday loans averaged about 278 percent –equivalent to a two-week fee of about $10.50 for every $100 borrowed, the SCC report said.

Getting traction in the legislature

The Virginia General Assembly passed the Payday Lending Act in 2002 and car title lending was legalized in 2010.

In 2015, then-Del. Surovell proposed legislation keeping lenders from offering different loan products at the same location, he said.

The bill and several others restricting payday and title lenders were tabled in the House Commerce and Labor Committee, according to the Virginia Legislative Information System.

Surovell said his colleagues told him they delayed regulation to give lenders time to voluntary make changes in their businesses.

“I think the whole process is abusive, but some people feel that the industry is being evasive,” Surovell said.

A year later, he said the voluntary changes have not materialized and hopes the climate in 2016 will be more favorable.

Clusters of lenders

Williams has no criminal record. When callers threatened his arrest he worried his right to carry a concealed firearm would be in jeopardy, even though failure to pay a debt is not a criminal offense in Virginia.

Out of options, Williams drove his 1998 Ford Explorer Sport to one of the three Lynchburg locations of Fast Auto Loans and traded his title for cash.

He already had a loan on his other vehicle and owed about $600 in three additional unpaid, short-term loans, he said.

In 2014, a quarter of the people given title loans in Virginia failed to make a monthly payment for more than 60 days, and 19,000 people had cars repossessed, the SCC report said.

Repossession and delinquency rates for purchased and financed cars averages less than 1 percent, according to a report from the credit reporting agency Experian.

Fast Auto Loans and its parent company, Community Loans of America, declined to comment.

In two studies conducted by the Center for Responsible Lending, researchers found correlations between lending store locations and neighborhoods with poor or minority groups.

“We suspect there is a lot of targeting there in terms of where they choose to put their stores,” said Delvin Davis, a senior research analyst at the nonpartisan consumer advocacy group.

In Lynchburg, three title lending locations are clustered in the 2500 block of Memorial Avenue, where an average of 35 percent of people live below the federal poverty line — $23,834 for a family of four, according to 2014 US Census Bureau data.

Five more title lenders sit between the 3800 and 2100 blocks of Wards Road, where about 23 percent of residents — and about 40 percent of black or African American residents — live below the poverty line, census data said.

The cost of an emergency

With check in hand, Williams wired money to the debt collector, but quickly got behind on his title loan payment.

He also had a separate loan from CashNetUSA, a cash advance firm that lends money online or by telephone. “We’ve got you covered, cash for emergency expenses,” said the cashnetusa.com homepage.

The next day, $450 was in Williams’ account, he said.

Cashnet also tacked on an annual interest rate of 299 percent and a transaction fee of $67.50 — calculated as 15 percent of the advance amount, according to US District Court documents filed by Williams as part of his lawsuit against CashNet.

When Williams fell behind on his CashNet loan, the company began debiting his bank account, court documents said.

Virginia Legal Aid Society, Inc. Attorney Jeremy White filed a lawsuit in August against CashNet on Williams’ behalf. White said 40 percent of his caseload involves title and payday loans.

Williams’ case accused Cashnet of violating state and federal laws and settled for an undisclosed sum, White said. Williams has since paid off his outstanding debts.

Enova International, Inc., parent company of CashNet, was contacted but had no comment.

Changing products for new rules

Between 2002 and 2007, payday loans to Virginians increased from $165 million to roughly $1.3 billion, SCC reports said.

The General Assembly passed additional restrictions in 2008 limiting high-interest payday loans, Surovell said.

After the legislation passed, companies began offering open-ended lines of credit loans. The loans offer a grace period of 25 days and no term limit or interest rate caps on the debt, White said.

The number of borrowers seeking help from VLAS with what they think is a payday loan but is actually open-ended credit has increased, White said.

Companies also have designed alternatives for title loans utilizing the Depression-era Virginia Consumer Finance Act to loan, White said.

Under the Consumer Finance Act, amounts below $2,500 can be loaned with a maximum interest rate of 36 percent, but there is no rate restriction over $2,500.

The loans can still use a car’s title as collateral, White said.

“It looks like a title loan, smells like a title loan, but they say it’s not,” White said.

When TitleMax added a consumer finance subsidiary to Virginia lending locations, loan amounts received between 2013 and 2014 increased 40 percent, but total loans only increased 16 percent, a Surovell press release said.

Between 2014 and 2015, lending companies TitleMax, Anderson Financial Services, Check into Cash of Virginia and Community Loans of America contributed about $650,000 to both Democrats and Republicans, according to the Virginia Public Access Project.

Attorney General Herring worked with Surovell to introduce bills capping interest rates on consumer finance loans and open-ended lines of credit, Communications Director Michael Kelly said.

A bill enhancing reporting requirements and prohibiting car title and consumer finance lenders from opening in the same location or near military bases and casinos is also expected, Kelly said.

Advocates like White hope that legislators will pass the proposed rules eliminating some of the legislative gray areas on open-ended and consumer finance loans.

“Then you at least have the backstop of limiting this cycle of debt,” White said. “And that’s a step in the right direction.”

Comments are closed.