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ATTORNEY GENERAL HERRING WARNS VIRGINIANS ABOUT DANGERS OF PREDATORY LOANS
~ Even lawful loans can be financially risky and trap consumers in a debt cycle; Herring supported comprehensive predatory lending reforms last year that went into effect January 1, 2021 ~
RICHMOND – 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, short-term (formerly payday), car title, and open-end loans, and to understand their rights when taking out one of these loans. In 2019, over 83,107 Virginians took out 268,097 payday loans totaling nearly $111 million with an average APR of 253%. More than 102,815 Virginians took out more than $137 million in car title loans in 2019, and almost 10,000 Virginians had their cars repossessed and sold for inability to repay a car title loan.
Attorney General Herring supported comprehensive predatory lending reforms last year (HB789 Delegate Lamont Bagby; SB421 Senator Mamie Locke) that went into effect on January 1, 2021. These reforms tighten the rules on exploitative predatory lenders and close easily abused loopholes so that Virginia borrowers are afforded protections regardless of the type of loan they seek. The legislation also gave Attorney General Herring's Predatory Lending Unit more tools to enforce these new protections and better combat predatory lenders operating in the Commonwealth. Following Attorney General Herring's letter to Governor Northam asking for an accelerated effective date for this legislation, the General Assembly moved the effective date for these reforms up to January 1, 2021 from July 1, 2021.
"Unfortunately, oftentimes when Virginians find themselves in a tough financial situation, they turn to small-dollar loans to try and make ends meet. These kinds of loans can trap Virginians in a seemingly never-ending cycle of debt and high interest rates, that could end up costing hundreds if not thousands of dollars more than the original loan,” said Attorney General Herring. "Thanks to these new protections, Virginians now have the ability to access loans and credit that will meet their financial needs without potentially ruining their finances. I want to encourage all Virginians who may have fallen on hard financial times to explore all options available before seeking a small-dollar loan.”
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. Last month, Net Credit's appeal to evade Attorney General Herring's claims for a potential award of consumer restitution was unanimously rejected by the Supreme Court of Virginia.
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 borrowers believe their rights have been violated, or that their lenders 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:
- By phone: (800) 552-9963
- By email:
- Online Complaint Form
- Online Contact Form
Since 2014, Attorney General Herring's Consumer Protection Section has recovered more than $356 million in relief for consumers and payments from violators. The Section has also transferred more than $59 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 Loans
Before obtaining a potentially predatory loan, 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 known 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.
- Short-term or auto title lender – Lenders operating under the new consumer finance statutes are limited to much lower interest rates than those previously permitted in Virginia to payday and auto title lenders. These loans should be considered by those who are not able to obtain a loan from a bank, credit union, or consumer finance company.
- 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 (SCC), in 2019 (under the prior law):
- 13,513 Virginians had their cars repossessed for inability to repay a car title loan
- 9,998 Virginians had their cars repossessed and sold for inability to repay a car title loan
- Car title lenders issued 121,023 loans totaling more than $137 million ($1,134 average loan) to 102,815 borrowers
Current Virginia law provides restrictions on motor vehicle title loans and enhanced protections for borrowers:
- Interest/Fees – Title lenders can charge the following interest and fees on their loans:
- 36% per year; and
- A monthly maintenance fee of 8% of the loan principal per month up to a maximum of $15
- Length of a loan – With limited exceptions, the loan term must be between 180 days (six months) and two years
- 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 $2,500 or 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 still 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/Short-Term Loans
According to the SCC, in 2019 (under the prior law):
- More than 83,000 Virginians took out 268,097 payday loans totaling nearly $111 million.
- Each borrower averaged about 3 loans, and the average loan amount was $413.
- Lenders sued Virginia borrowers to recover nearly $2 million.
Current Virginia law provides restrictions on short-term loans and enhanced protections for borrowers:
- Limitations on interest and other fees – Interest on a payday loan is capped at 36% annually. In addition to interest, lenders may charge a monthly maintenance fee of 8% of the principal amount up to a maximum of $25.
- Length of loans – With some limited exceptions, the term of a short-term loan must be between 120 days (four months) and two years.
- Loan amount – Lenders cannot loan more than $2,500 to a borrower.
- Number of loans – Lenders cannot issue more than one loan at a time to a borrower.
- Loans to military personnel – Lenders cannot make a short-term loan to a borrower who is a member of the armed forces or one of his or her dependents.
Online 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 consumer finance company, short-term loan lender, 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.
The new consumer finance laws require online consumer finance, short-term loan lenders, and motor vehicle title lenders who issue loans to Virginians are required to be licensed by the SCC.
Online short-term loan lenders and auto title lenders are subject to the same interest and fee, loan term, and loan amount limitations noted above.
Online consumer finance companies are subject to the same interest and fee limitations, loan term, and loan amount limitations as those applicable to brick-and-mortar companies. Those limitations are as follows:
- Interest and fees – Lenders can charge interest at the annual rate of 36%, plus a loan processing fee of 6% of the principal amount (with a minimum of $50 and a cap of $150).
- Loan amount – Lenders cannot loan less than $300 or more than $35,000 to a borrower.
- Length of loan – The loan term must be between 180 days (6 months) and ten years (120 months).
Open-End Credit Plan Loans
In recent years, lenders were increasingly exploiting a loophole and steering borrowers towards open-end credit plans that afforded borrowers very few consumer protections and often exposed borrowers to unlimited interest rates under the prior law. These loans could be offered under the prior law 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 could charge unlimited interest under the prior law. 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 could charge an unlimited interest rate.
The new consumer finance laws closed this loophole. Under the new law, open-end credit plan lenders can charge: (1) interest at an annual rate of 36%; and (2) an annual participation fee of no more than $50. The new law continues to require a finance-charge grace period of at least 25 days.
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