The Virginia Organizing Project : Let’s put the brakes on predatory car title lenders

Let’s put the brakes on predatory car title lenders

“God bless America. Don’t take advantage of people.” That’s how David Knott of Shenandoah County ended his statement at a media event on car title lending.

The October 1, 2008, Richmond media conference was held by VaPERL, the Virginia Partnership to Encourage Responsible Lending, and launched the Virginia Campaign for Fair Lending. Knott and another car title loan borrower, Helen Johnson, described how they were definitely “taken advantage of” by a lending industry that is unregulated and almost hidden here in Virginia.

But another speaker had what he called “a pretty simple solution” to this serious problem. Jay Speer, director of the Virginia Poverty Law Center, said the Virginia General Assembly could bring the car title lenders under a statute already on the books, the Virginia Consumer Finance Act, to regulate the industry and end its exploitation of vulnerable Virginians.

Johnson, a Richmond resident, said, “We got the car title loan, and thought we would just pay it off in a matter of months. But when I paid it, the amount I owed stayed the same. If I paid $200, they might take off $20. My husband thought they were crazy, didn’t believe they could actually do it.”

Unfortunately, car title lenders can and do operate like this. To get a car title loan, the borrower must show clear ownership of the car with no outstanding loans or liens. The borrower can then borrow up to half the wholesale value of the car. Typically, the borrower pays between 25 percent and 30 percent interest each month (that’s right, each month), which is an annual interest rate of 300 percent to 360 percent! Despite these viciously high interest rates, car title lenders also charge the borrower other fees that can cost up to $200 or more.

Car title lenders slip through current law by claiming that they provide open-ended loans, like credit cards, which have no interest rate limit in Virginia. The lenders grant a 25-day grace period after which borrowers are expected to make minimal monthly payments set by the lenders. Frequently these payments don’t even cover the total monthly interest on the loan, much less any of the principal. In this situation, each month the borrowers owe more and more money to the car title lender. This makes it possible for the car title lender to repossess the car and sell it at an auto auction.

Johnson got free of this situation with the advice of Legal Services attorneys. Knott had to sell his truck to pay off the loan. But every year thousands of Virginians don’t pay off these loans, and end up losing their vehicles. One car title lender, LoanMax, has a regularly scheduled monthly auction for the cars it has repossessed, and typically sells about 100 each month.

Last year, thanks in part to VaPERL’s work, a bill was enacted in the 2008 session of the Virginia General Assembly with limited reforms of the payday loan industry.

Car title loans can do even more harm to Virginia households than payday loans. Not only are the interest rates and fees as high, but car title borrowers often lose a critically important asset, their car. Without a car, daily tasks like getting to work, school, the doctor and child care become major burdens.

As Speer said, the Virginia Campaign for Fair Lending proposes that the General Assembly bring car title loans under the provisions of the Virginia Consumer Finance Act. This Act, which covers other small loans in the state, establishes a 36 percent annual interest rate cap for small loans. (After all, car title loans are secured by a car, so they are safe loans.) As Speer noted at the media conference, there are currently 196 locations in Virginia where small loans like this are made. The loans are regulated, and the lenders are licensed by the state.

Speer’s advice is clear: “Don’t let car title lenders bend or twist around the rules.”

Knott expressed his opinion: “I think what the car title lenders are doing is wrong.”

If you agree, join the Virginia Organizing Project and VaPERL in urging your legislators to support the Virginia Campaign for Fair Lending and bring car title loans under the provisions of the Consumer Finance Act.

For more information, contact the Virginia Organizing Project at (434) 984-4655 x222.

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