Consumer advocates view car-title lending as a form of predatory lending. Like short-term payday loans, car-title loans often carry exorbitant interest rates that trap people in a cycle of debt. A typical 12-month car-title loan of $1,000, for example, can come with an effective annual interest rate of 250 percent.
Car-title loans may even be worse than payday loans, consumer advocates say, because borrowers risk losing their vehicles. That can put them at risk of losing their jobs, especially in rural or suburban areas with limited mass transit.
“Once you get in, it’s very hard to get out,” said Dana Wiggins, director of outreach and financial advocacy at the Virginia Poverty Law Center in Richmond.
The proliferation of car-title lenders in low-income areas can trap struggling neighborhoods in the same downward spiral. Del. Scott A. Surovell (D-Fairfax) said six of the 16 licensed car-title lenders in Fairfax County have set up shop in the Route 1 corridor, where many recent immigrants and poor working families live. The businesses also are a short drive from similar neighborhoods in Prince George’s County and the District.
“I consider these things blight,” said Surovell, who voted against allowing such loans to nonresidents. During the floor debate, then-Del. Glenn Oder (R-Newport News) waved around a stuffed shark and warned against setting loose predatory lenders in the region.
Consumer advocates also hammered Saslaw, saying he is too close to the industry. Between 2010 and 2012, Saslaw received nearly $73,000 in campaign donations from payday lenders, car-title lenders and consumer finance firms, according to records collected by the nonpartisan Virginia Public Access Project.
In an interview, Saslaw defended the legislation, saying Virginia should regulate such loans rather than outlaw them.
Saslaw also argued that his legislation includes several important consumer protections. The law caps interest at 22 percent per month on loans up to $700; 18 percent per month on loans between $700 and $1,400; and 15 percent per month above that. Lenders also cannot write a loan for more than half a vehicle’s book value or seize a vehicle without giving borrowers 10 days’ written notice.
Saslaw also rejected charges by consumer advocates that the lending industry’s generous campaign donations have sheltered them from stricter regulations.
“That’s a little insulting. If that’s the case, we wouldn’t have changed the payday lending law, which essentially drove them out,” Saslaw said.
Del. Mark Sickles (D-Fairfax), who backed Saslaw’s 2011 bill, said such lending serves people who need money but lack sufficient credit to obtain small loans from banks or other traditional institutions.
“I think there are people who actually like this. They’re not feeling enslaved at all,” Sickles said. “At some point, we have to say, ‘People, you’re grown-ups.’ ”
But some of those grown-ups said that although they knew the loans were unwise, they saw no alternative.
Don L. Crawford Jr. of Peterstown, W.Va., said he needed money after he was laid off from his job with a flooring company. As bills kept mounting — for rent, car insurance, and his teenage daughter’s eyeglasses — Crawford heard a radio ad for Fast Auto Loans and visited its branch in Wytheville, Va. But then he missed a payment and debt collectors started badgering him. They pestered friends and family members too, he said.
“It aggravated me to death,” Crawford, 43, said. He asked family members for money to pay off the loan. But the total cost — $3,000 to pay back $1,500— has made him think twice about taking such a loan again.
“They just put you in a bad spot and you can’t get out of there,” Crawford said.
Researchers Magda Jean-Louis and Julie Tate contributed to this article.