Jason S. Miyares
Attorney General of Virginia

Image of the Virginia AG Seal

Commonwealth of Virginia
Office of the Attorney General

Mark Herring
Attorney General

202 North Ninth Street
Richmond, Virginia 23219

 

For media inquiries only, contact:  
Michael Kelly, Director of Communications
Phone: (804)786-5874 
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

HERRING WARNS VIRGINIANS ABOUT DANGERS OF PREDATORY LOANS

~ Even lawful loans can be financially risky and trap consumers in a debt cycle whether issued online or by a payday or car title lender ~

RICHMOND(March 8, 2018)-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.

 

"Predatory lenders try to make a buck by tying a weight around the ankles of our friends and neighbors who are looking for a financial lifeline. It's exploitative, it's wrong, and unfortunately Virginia law doesn't do nearly enough to protect our friends and neighbors who find themselves in a tough spot. I thought new federal regulations from the Consumer Financial Protection Bureau might give us some additional protections, but unfortunately the Trump administration has put those rules on hold," said Attorney General Herring. "I'd really encourage any Virginian in need of a loan to explore and exhaust every possible alternative before seeking a payday, car title, or online loan. With many of these small loans, the few hundred dollars you borrow will end up costing you thousands upon thousands of dollars for years on end, and in some cases, the companies are counting on your loan to fail. If you find yourself in need of a loan, please understand the risks, carefully review any terms, and be honest about your own ability to repay the loan."

 

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 $25 million in restitution and forgiven debt from online lenders, including $15.3 million from CashCall, $4 million from MoneyKey, $3.4 million from Opportunity Financial, and $2.7 million from MoneyLion.

 

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:

 

Alternatives to Predatory Loans

Before 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 Loans

According to the State Corporation Commission, in 2016:

  • 16,877 Virginians had their car repossessed for inability to repay a car title loan
  • 13,586 Virginians had their car repossessed and sold for inability to repay a car title loan
  • 26 car title lenders issued 155,996 loans totaling $162,678,690 ($1,043 average loan) to 114,042 borrowers (1.4 loan average per borrower)
  • The annual percentage rate of interest ranged from 33% to 268%

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-month loan of $500, the total APR of the loan will be 264%.

  • 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 Loans

According to the State Corporation Commission, in 2016:

  • 3,349 Virginians were sued by payday lenders for inability to repay a loan
  • 18 licensed lenders operating 171 different locations issued 326,135 loans totaling $129,092,384 ($396 average loan) to 101,902 borrowers (3.2 loan average per borrower)
  • Average annual percentage interest rate charged was approximately 267%

Virginia law provides certain restrictions on payday loans and protections for borrowers:

  • Limitations on interest and other fees-Interest on a payday loan is generally 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%.
  • 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 Loans

Online loans are a growing segment of the consumer lending industry. Online consumer loans generally remain subject to Virginia's "usury statutes" and 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 Loans

Lenders 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.

 

# # #