Of the. Mark Levine remembers receiving a $ 1,000 loan offer from a company with a 299% interest rate buried in great detail.
“As the business compounds daily at this interest rate, this loan would cost anyone desperate enough to accept this offer over $ 20,000 in interest and fees if they tried to pay off the $ 1,000 loan in full. only one year after receiving it. Levine, a Democrat from Alexandria, said in
.
If the loan had not been hit for two years, the interest charge would have reached $ 400,000, Levine said.
In an effort to tackle predatory lending, loans on adverse borrower terms, the House of Delegates and the Senate each recently voted to pass bills that will change laws relating to consumer lending. This includes payday loans, which would be renamed short-term loans, auto title loans, and indefinite credit, such as credit cards and other lines of credit.
, known as the Virginia Fairness in Lending Act, sponsored by Del. Lamont Bagby, D-Henrico, and co-sponsored by 42 other delegates, including Levine, passed House 65-33 on Jan.31. Complementary bill
, sponsored by Senator Mamie Locke, D-Hampton, was passed by the Senate on Monday 23-16. The Virginia Poverty Law Center, an advocacy group for low-income Virginians, helped draft the legislation.
“Most of the current loans are just deceiving people and making obscene profits for payday lenders and auto title lenders who have no interest in helping people and making them mutually beneficial,” he said. said Jay Speer, executive director of the VPLC and director of the Center for Economic Justice.
The Virginia Fairness in Lending Act is largely focused on the parameters of short-term loans. The bill included four other House bills that sought to tighten regulations on consumer loans, finance for personal or household purposes, and fill existing loopholes for businesses.
Lawmakers want to increase the maximum amount of these loans from $ 500 to $ 2,500. The current law sets the duration of these loans at a minimum of twice the borrower’s pay cycle. For example, if you get paid every two weeks, you have one month to repay the loan. This bill will give people a minimum of four months to repay a loan and a maximum of two years.
, sponsored by Levine, is one of the incorporated bills. The bill sets a maximum interest rate of 36% on open-ended credit plans that currently have no caps, and will also apply to payday loans. Levine said his fight against predatory lending began during the 2018 General Assembly session when he proposed a bill to regulate lending.
“These are designed to bankrupt people who are on the brink of poverty anyway,” Levine said. “There is a cycle of poverty and these types of loans perpetuate that cycle of poverty. “
The proposed legislation also applies to auto title loans, where the borrower offers his car as collateral. It sets the interest rate on securities loans at a maximum of 25% of the federal funds rate at the time of the loan.
An estimated 12 million Americans take out payday loans each year, racking up $ 9 billion in loan fees,
. Borrowers can fall into the “debt trap”, a situation in which a borrower is unable to repay a loan due to high interest rates. the
that the average annual percentage rates in the state are 251% for payday loans and 217% for title loans.
Several payday lending institutions declined to comment on the legislation when Capital News Service asked for comment. Peter Roff, a senior researcher at Frontiers of Freedom, a Northern Virginia-based nonprofit that promotes limited government and free enterprise, wrote in a recent opinion piece that although loan laws consumption need to be reformed, the current legislation would create inequalities and less availability for the consumer. credit market. He said lawmakers should focus on better reform and “not just politically popular ideas.”
The Virginia Fairness in Lending Act states that the amount needed to regulate consumer lending will be just under $ 300,000 and will be accrued by the fees required for lenders to obtain a license. There are currently 15 approved lenders with over 150 locations in the state, in addition to online lenders.
“Internet lenders use these loopholes, like open-ended credit, which have no regulation,” Speer said. “Bill 789 and Senate Bill 421 fill all these gaps and put in place a fair system for borrowers and lenders. “
HB 789 is currently on the Senate Trade and Labor Committee. SB 421 goes to the House for consideration.
