The vehicle-title lending industry and its opponents are set for a legislative duel next session that will determine the future of the largely unregulated loans in Virginia.
The effort follows a successful campaign last year to put limits on payday lenders, although the high-interest loans that use car titles as collateral so far have eluded similar regulations.
Detractors — who want to mandate interest rate caps — frame the practice as predatory lending, which can result in outsized finance charges and leave a delinquent borrower to lose his car. The industry argues that a too-stringent ceiling on rates would make car-title lending unprofitable and amount to an effective ban.
A joint House and Senate panel on car-title lending met in Richmond Monday. Members plan to draft a proposal for regulating the industry by the first week in January. The General Assembly begins its session Jan. 13.
Del. Kenneth Alexander, D-Norfolk, a member of the subcommittee, told The Examiner he hoped the measure “would include “some safeguards for consumer protection, as well as some financial literacy.”
One proposal floated Monday, which would establish an annualized cap on interest rates of 50 percent, “would put title lending out of business in Virginia,” W. Scott Johnson, a lawyer representing a major title lender, said after the hearing.
He said the lenders would “favor any type of legislation that would codify any type of good practices that we use already.”
A review of other states that have sought to rein in the loans found that all lenders had fled states with a 36 percent-or-less annual interest rate cap, said Joseph Face, Virginia’s commissioner of financial institutions. The lenders need to collect about 18 percent interest per month to break even, he said. The open-ended loans are offered under Virginia’s credit card statute.
Efforts to subject the industry to greater state regulation fell apart during the 2009 General Assembly session, although Sen. Majority Leader Dick Saslaw, D-Springfield, at the time promised to renew the effort next year. Saslaw sits on the car-title lending subcommittee.
