Va. bill would lift ban on car-title lending to out-of-state drivers
Monday, February 14, 2011
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.