During National Consumer Protection Week, Attorney General Mark R. Herring is encouraging Virginians to familiarize themselves with the risks associated with small-dollar loans including online, payday, car title, and open-end loans, and to understand their rights when taking out one of these potentially risky loans. In 2017, approximately 96,000 Virginians took out more than 309,000 payday loans totaling nearly $123 million with an average APR of 254%. More than 122,000 Virginians took out approximately $155 million in car title loans in 2017, and nearly 12,000 Virginians had their cars repossessed and sold for inability to repay a car title loan. “These small-dollar loans can act as financial quicksand, trapping Virginians in a vicious cycle of debt and high interest rates that will cost them hundreds if not thousands of dollars.
Predatory lenders are exploitative and wrong but unfortunately too many Virginians find themselves turning to them when they fall on hard financial times,” said Attorney General Herring. “I would encourage Virginians who are in need of a loan to explore alternative options before seeking a car title, online, payday or open-end loan. With many of these loans, the few hundred dollars that you borrow will end up costing thousands of dollars over a number of years, and in some cases, these companies are even banking on your loan failing.” Attorney General Herring created the OAG’s first Predatory Lending Unit to investigate and prosecute suspected violations of state and federal consumer lending statutes, including laws concerning payday loans, car title loans, consumer finance loans, mortgage loans, mortgage servicing, and foreclosure rescue services. The Unit also focuses on consumer education so Virginians are aware of the potential risks of these loans, as well as alternatives. In recent years, Attorney General Herring and his team have focused on online lenders, which have been a growing percentage of the lending market, but can still present the same risks as any payday or motor vehicle title lender. To date, the Predatory Lending Unit has recovered more than $45.9 million in restitution and forgiven debt from online lenders, including $20.1 million from Future Income Payments, $15.3 million from CashCall, $4 million from MoneyKey, $3.4 million from Opportunity Financial, and $2.7 million from MoneyLion. Additionally, Attorney General Herring sued online lender Net Credit, one of the largest online lenders operating in Virginia, for illegal lending and collections practices. Net Credit allegedly issued loans of $1,000 to $10,000 to more than 47,000 Virginia borrowers between 2012 and 2018 with interest rates from 34% to 155%. In one loan cited in the complaint, a Virginia borrower was responsible for more than $6,000 in repayments for just $2,000 borrowed. During his administration, Attorney General Herring’s Predatory Lending Unit has also successfully brought enforcement actions against, among others, motor vehicle title loan lenders, online payday lenders, mortgage servicing companies, and pawnbrokers. If a borrower believes their rights have been violated, or that their lender may have violated lending statutes, they should contact Attorney General Herring’s Consumer Protection Section to file a complaint or to get additional information about any consumer protection related matter:
Since 2014, Attorney General Herring’s Consumer Protection Section has recovered more than $292 million in relief for consumers and payments from violators. The Section has also transferred more than $33 million to the Commonwealth’s General Fund. Following a major reorganization and enhancement in 2016, the OAG’s Consumer Protection Section has been even more effective in fighting for the rights of Virginians. Alternatives to Predatory LoansBefore obtaining a potentially predatory loan from a non-traditional lender, consumers should consider their other alternatives. Among others, those alternatives might include: Traditional lenders – See if you can meet your needs through a traditional lender such as a bank, credit union, or consumer finance company, which typically will have a longer term and lower interest rates. Even if it is a small amount, a community bank or credit union may be willing to loan you the money you need. Credit card cash advance – If you have a traditional credit card with remaining credit available, obtain a credit card cash advance, which will often have a lower interest rate than that offered by a payday or motor vehicle title lender. Negotiation with creditors and companies – If you need money because you are having temporary trouble keeping up with routine bills, speak with your creditors, explain the financial difficulties you are having, and see if they will let you enter into a payment plan to take care of what you owe them. Personal connections – Consider whether you can get a temporary loan from family, friends, your congregation or place of worship, or a local charity. Military options – If you are in the military, check with the applicable military aid society to see if it has any financial assistance programs that could be of use. Paycheck advance – Some employers will allow you to borrow against your future paycheck. Car Title LoansAccording to the State Corporation Commission, in 2017:
- 14,621 Virginians had their cars repossessed for inability to repay a car title loan
- 11,771 Virginians had their cars repossessed and sold for inability to repay a car title loan
- Car title lenders issued 145,627 loans totaling $155 million ($1,065 average loan) to 122,555 borrowers
Virginia law provides certain restrictions on motor vehicle title loans and protections for borrowers:
- Interest – Title lenders can charge interest based on the following sliding scale:
- 22% per month on the first $700 in principal;
- 18% per month on any amount above $700 up to $1,400; and
- 15% per month on any amount above $1,400.
- For a one-year loan of $500, the total APR of the loan will be 264% if the maximum charge is imposed.
- Length of a loan – The loan term must be between 120 days (four months) and one year.
- Number of loans – Only one loan may be issued at a time to each borrower, or on each title.
- Amount of loan – The amount loaned cannot exceed 50% of the value of the vehicle.
- Post-repossession protections – After default, a lender generally may only repossess the vehicle. The lender cannot continue to charge interest on the loan.
- Loans to military personnel – Lenders cannot make a title loan to a borrower who is a member of the armed forces or one of his or her dependents.
Payday LoansAccording to the State Corporation Commission, in 2017:
- More than 96,000 Virginians took out more than 309,000 payday loans totaling nearly $123 million.
- Each borrower averaged 3 loans, and the average loan was $397.
- Lenders sued Virginia borrowers to recover approximately $1.8 million.
Virginia law provides certain restrictions on payday loans and protections for borrowers:
- Limitations on interest and other fees – Interest on a payday loan is capped at 36% annually. Lenders may not charge more than 20% of the loan proceeds as a loan fee, and may only charge a $5 verification fee for checking the state’s payday loan database prior to issuing a loan. For a one-month loan of $500, the total APR will be 288% if the maximum charges are imposed.
- Length of loans – The term of a payday loan must be at least twice the borrower’s pay cycle so they have a better chance of repaying it. After that time, lenders cannot charge interest of more than 6% per year.
- Loan amount – Lenders cannot loan more than $500 to a borrower.
- Number of loans – Lenders cannot issue more than one loan at a time to a borrower.
- Number of loans in a 180 day period – If a borrower receives and pays off 5 payday loans in a 180 day period, there is a mandatory 45-day cooling off period when a lender cannot issue another loan to that borrower.
- Loans to military personnel – Lenders cannot make a payday loan to a borrower who is a member of the armed forces or one of his or her dependents.
Online LoansOnline loans are a growing segment of the consumer lending industry. Online consumer loans generally remain subject to Virginia’s “usury statutes” and annual interest rate limits of 12%, unless the lender qualifies for an exception, such as being an SCC-licensed payday or motor vehicle title lender. Interest charged in excess of that amount should be reported to Attorney General Herring’s Consumer Protection Section as soon as possible. Online payday and motor vehicle title lenders who issue loans to Virginians are required to be licensed by the State Corporation Commission. However, closed-end installment lenders that operate online from outside Virginia and make loans to Virginia consumers are not required to be licensed by the SCC under current law. Open-End Credit Plan LoansLenders are increasingly exploiting a loophole and steering borrowers towards open-end credit plans that afford borrowers very few consumer protections and can expose borrowers to unlimited interest rates. These loans can be offered by both online and brick-and-mortar lenders, often using phrases like “line of credit” and “cash advance.” While open-end credit loans might look like more traditional loans, open-end credit lines can stay open for an unlimited amount of time and lenders can often charge unlimited interest. One of the few consumer protections in this area is a 25-day “grace period” during which the borrower has an opportunity to pay off the loan without interest or other finance charges, but once the 25-day grace period expires, a lender can charge an unlimited interest rate.