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Va. bill would lift ban on car-title lending to out-of-state drivers

By Rosalind S. Helderman
Washington Post Staff Writer
Sunday, February 13, 2011; 11:59 PM

RICHMOND - Maryland and District officials are troubled by a bill speeding through the Virginia General Assembly that would lift a six-month ban on the state's car-title lenders offering cash to out-of-state and often out-of-luck car owners.

The officials say the legislation would overturn guidelines adopted in October that they think protect their residents from predatory lending practices in Virginia. Consumer advocates say the lenders prey on desperate borrowers, who quickly fall behind on payments and often end up losing vehicles needed for work. The title-lending industry, they say, has been protected in Virginia partly because of generous industry contributions to the Democratic and Republican parties.

But title lenders, who offer quick cash to people who put their cars up as collateral, say the industry provides a lifeline to risky borrowers with poor credit who would not have access to money otherwise.

Maryland and the District have usury laws that cap the interest rates lenders can apply on loans backed by car titles. Because the industry relies on charging interest rates that can rise to several hundred percent, the caps mean the industry is nonexistent in those areas.

But until October, drivers were able to cross into Virginia, where efforts by advocates to enact similar caps have repeatedly failed.

The General Assembly imposed new rules last year and called for the State Corporation Commission to post new regulations. It was the SCC's guidelines in October that put an end to out-of-state lending - a regulation that the General Assembly is considering scrapping. (The Senate adopted the bill last month, and it will be heard by a House of Delegates committee on Tuesday.)

"The effort in Virginia is extremely troubling," said D.C. Council member Mary M. Cheh (D-Ward 3), who in 2007 led an effort to apply the interest rate cap on car-title lenders and the payday lending industry in the District. "We're concerned about our residents getting taken in."

Likewise, the Maryland Attorney General's Office has contacted its counterpart in Virginia to express concerns about the law's impact on Marylanders. Virginia Attorney General Ken Cuccinelli II (R) has no position on the issue, his spokesman said.

Senate Majority Leader Richard L. Saslaw (D-Fairfax), who is sponsoring the bill, said it was never the legislature's intent to stop loans to drivers from other states as it enacted other reforms.

The state now requires the industry to fully inform borrowers on interest rates. They must be given notice that the rates on loans are high and that it is in their interest to pay the loan quickly. Borrowers cannot be loaned more than 50 percent of their car's value, and lenders cannot require payments for more than a year, meaning borrowers' obligations can't be endless.

"People don't get something they don't want," Saslaw said. "If there's no demand for it, then people wouldn't drive from Maryland or West Virginia or anywhere else to get car-title loans. . . . They clearly know what they're getting into."

But some of those who have fallen into debt to the companies would beg to differ.

Struggling and behind on her rent, Danielle Battle of Fort Washington saw a television ad in 2009 offering quick cash to car owners. She went to Virginia and borrowed $2,500, offering her 2006 Nissan Xterra as collateral.

"I knew there was a catch to it," she said. "But when you're desperate, you'll do almost anything."

At first, she was able to make monthly payments of about $800. But then she fell behind. After paying $7,000 on the loan, the lender told her to submit a lump sum payment of $7,000 or she would lose the car. Last February, she woke up to find the Nissan missing from her driveway.

"I was distraught," she said. "But there was nothing else I could do."

After Sherri Blunt, 30, of Greenbelt fell behind several years ago on payments on a $400 loan to a Virginia car-title company, she lost the car she needed to get to her two jobs at Papa John's pizzeria and FedEx. She was out of work for a year.

"It was horrible," Blunt said. "That action right there, it put me in such a bind, it wasn't even funny."

Both complained to the Maryland Attorney General's Office about their experiences.

Advocates point to a pattern of lenders' campaign donations to Virginia politicians as one reason the state has been more resistant than its neighbors to impose limits on the industry.

"There is, without a doubt, heavy lobbying on this issue," said Del. G. Glenn Oder (R-Newport News), who fears that Virginia is becoming the "capital of predatory car-title lending on the East Coast."

Since 2004, four of the 16 companies that have registered since October with the SCC to offer car-title loans have contributed more than $1.05 million to Virginia politicians and their campaign committees, according to an analysis by The Washington Post with the assistance of the Virginia Public Access Project, a nonpartisan, nonprofit group.

The money has gone to both Republicans and Democrats, including more than $155,000 directly to each of the parties and their caucus committees in the House and Senate. Donations rose in 2006 and 2007, when the General Assembly held vigorous debates about whether to impose new limits on payday lending. Many car-title lenders also offer payday loans.

No one member has received more from the industry than Saslaw, a powerful legislative veteran of 35 years from Northern Virginia who has a business-friendly reputation. Saslaw has received $36,500 from the companies since 2004.

Chairman of the Senate committee that oversees the industry, Saslaw said he is not motivated by the donations.

"I get them from Dominion," Saslaw said of contributions from the Virginia electric utility. "I get 'em from the home builders, from the developers, from the beer and wine people. Yada, yada.

"I'm pro-business," he said. "And I don't apologize for it."

W. Scott Johnson, a lobbyist who represents car-title lender Community Loans of America, also said donations do not play a role in the discussions.

He said the effect of the new regulations has been "more than insignificant." More importantly, he said, the new guidelines mean applying different rules for out-of-state drivers than Virginians and could result in some consumers who have equity in their cars getting pushed to worse lending tools.

"If people are coming to Virginia for work and something happens to them and they have no other means for credit, they ought to be able to stand in the same way as Virginians," Johnson said.

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