Payday loans and title loans are used by Americans of all income levels.
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These loans are made to hundreds of thousands upon thousands of Virginians each year by lenders. These loans are made to hundreds of thousands of Virginians every year by lenders. As a result, residents of Virginia pay up to three times more for this type of credit than borrowers in other states, even those who get loans from the same companies.
Other states, like Colorado and Ohio, have modernized small loan laws to make credit more affordable while keeping it widely available.5 Virginia could follow their lead to better protect borrowers from damaging loan terms.
Virginians are hurt by title loans and payday loans
Virginia’s small loan laws are unusually weak in terms of consumer protections. Virginia residents often pay more for loans than those in other states and are subject to adverse consequences like repossession of cars and fees and interest exceeding the amount they borrowed. .
- Title loan borrowers in Virginia account for 1 out 8 repossessed vehicles each year. This is one of the highest rates in America. 6
- Lenders are able to sell 79% of the state’s repossessed vehicles because borrowers can not afford them. 7
- Unlicensed lenders can operate online and in stores throughout Virginia. They issue credit lines similar to credit cards but with higher interest rates (often 299% or more) plus fees.
- Virginia is one 11 state that doesn’t have an interest rate cap for installment loans exceeding $2,500. 9
- Virginia does not have an interest rate cap on credit lines and is one of six states in which payday lenders can use this unrestricted credit line law. ten
- Virginia law allows lenders to charge Virginians three times more than customers in other states for similar loans.
Virginia can balance affordability and access to credit by modernizing its small loan laws
2018 saw Ohio replace title deeds and payday loans with affordable installment credit at lower rates. Ohio lawmakers replaced harmful payday loans and title deeds with affordable installment credit at lower prices.13 Ohio’s economic recovery is estimated to exceed $ 75 millions per year. There are hundreds of approved providers in Ohio, but there has been new competition from low-cost lenders.
The Ohio Equity in Loans Act of 2018 requires lenders to give borrowers enough time to repay in equal installments, with payments making up only a small portion of borrowers’ paychecks.15 By law, any loan issued in violation of state law, whether issued online or in-store, is null, void, and uncollectible, and the Attorney General is empowered to enforce this provision.
Similar reforms in Colorado were passed in 2010. They have produced proportionate results with lower prices and affordable repayment terms. 16 State stores now serve approximately 1,100 unique borrowers each year.
Borrowers in these states and others with sane small loan laws have not turned in large numbers to unlicensed lenders.
Policymakers in Virginia can reduce costs by adopting prudent reforms similar to those in Ohio or Colorado. This will create an affordable price for borrowers as well as a market for lenders including low-cost providers. People who are currently unable to operate in the state because of its outdated laws19, and save families more than $ 100 million annually.