A new law passed by Congress and signed last month by President Barack Obama stops predatory lenders from taking advantage of our troops. That’s good news for Virginia’s more than120,000 active-duty service members — more than any other state except California — but unfortunately it does nothing to protect veterans, and all other Virginians.
The Virginia legislature has an opportunity to act and correct this oversight. With a new governor and legislature on the ballot this November, Virginians should demand an end to predatory lending at triple-digit interest rates.
The Military Lending Act, recently expanded by the U.S. Congress, bans loans to service members and their families that exceed a 36 percent cap on interest and fees — effectively reining in the high-cost payday and auto title lending that has plagued military communities. About a third of all states go further and cap interest and fees for all borrowers at 36 percent a year, recognizing that the same predatory lenders who prey on servicemen and women are also active in low-income communities.
Virginia is not one of those states.
That means that for working Virginia families not currently in the military — including 750,000 veterans — state law still allows high-cost payday and auto title loans. As the name implies, payday loans generally last a few weeks, helping the most vulnerable make it to another payday. And yet it’s not unusual for payday lenders to charge as much as 300 percent annual interest, which means a one-month $300 loan could cost as much as $374.
Rather than becoming a safe harbor for the state’s more than 200 payday lending stores, Virginia lawmakers this year should extend the military’s ban on high-cost loans to all residents. Following the example of their neighbors in states like Maryland, North Carolina, and West Virginia, lawmakers can effectively end predatory lending by capping all interest and fees at 36 percent per year. With a new governor and legislature on the ballot this fall, voters deserve to know whether their elected officials will keep harboring lenders that have preyed on troops and civilians alike.
To Richmond’s credit, Virginia in 2009 did add some restrictions on payday loans and limited the interest rate on these loans to 36 percent annually, but lawmakers failed to address a loophole: State law also allows two additional fees, leading to an average annual rate of 282 percent in Virginia. The average credit card rate is far lower: currently 14 percent nationally, according to BankRate.com.
Virginia also allows auto-title loans, which involve handing over a car’s title and a spare set of keys in exchange for cash. If the loan is not repaid promptly, the car can be repossessed. In 2011, nearly 400 auto title lending stores issued more than 128,000 title loans in the state, at an average annual interest rate of 220 percent. More than 8,000 cars were repossessed for nonpayment.
Yes, there already exist laws requiring lenders to warn consumers that “a payday loan is not intended to meet long-term financial needs,” but these don’t go far enough. One in six white households and a third of minority Virginia households lack enough resources even to get by at the poverty line for three months if they lost their jobs, according to the Washington, D.C.-based Corporation for Enterprise Development.
Enabling them to dig an even deeper financial hole — and potentially lose hundreds of dollars or a usable car that can get them to work and appointments — doesn’t build financial responsibility, and can lead to greater dependence on government assistance in the future. And predatory lending doesn’t hurt only borrowers; criminologists have suggested that payday and auto title lenders increase property crime.
Curbing predatory lending is good policy with bipartisan political appeal. Georgia’s Republican attorney general, Sam Olens, last year issued cease-and-desist orders to what he called “unscrupulous” Internet payday lenders, stating that “there is no gray area.” And last Congress, Sen. Richard J. Durbin (D-Ill.) sponsored a bill that would extend the Military Lending Act’s 36 percent annual interest cap to all borrowers nationwide.
Neither of Virginia’s senators co-sponsored it.
A bill protecting our troops from predatory lending somehow made it through Washington gridlock to become law. But voters need to see more leadership from Richmond if we want these protections extended to the rest of Virginians. A gubernatorial candidate looking to distinguish himself come November should vow to join the growing number of other states in protecting consumers from predatory lenders.