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.
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