Jeremy White | Car-title lending – what is it, really?
– The interest rate is at least 300 percent. Yes, 300 percent.
– The loan has no maturity date because it is structured as a “line of credit.”
– The monthly payment pays little to no principal on the loan.
– When an individual borrows $1,000 at 300 percent interest, the borrower pays $250 a month and that only covers the interest.
– After a year, the borrower will have paid $3,000 in interest.
– Oh yeah, after a year of faithful payments, the borrower still owes the full amount $1,000 borrowed.
This is the world of car-title lending. It is a black hole, from which the consumer cannot escape. It is predatory and it is unconscionable.
As an attorney, I have seen my clients in this situation over and over: Doing their best to make payments over nine to twelve months, they have paid two to three times the amount they borrowed but still have not reduced the principal owed. After paying all of this money, one missed payment puts their vehicle in danger of being repossessed. The loss of a vehicle to the average Virginian is disastrous because of the need for transportation to work and for family responsibilities.
The legal loophole used by car title lenders is the “line of credit” used by car-title lenders that allows them to charge the immoral rate of 300 percent interest. Virginia General Assembly, it is time to work for your constituents and close the loophole. Make car-title lenders subject to the Consumer Finance Act, like every other small loan lender, which caps the interest rate at 36 percent.
I would ask our legislators — why is this lending good for our economy? Why is this unending “line of credit” at 300 percent interest a sound product? It is not. It has no justification. It drains precious dollars from citizens of the Commonwealth. We have seen enough toxic loans and its disastrous effects on the housing market. Failure to respond decisively on behalf of consumers is to appease predatory lending in the Commonwealth.
Last year, some in the Virginia General Assembly and Gov. Tim Kaine decided to give in to the payday lenders and provide minimal consumer protections. In response, payday lenders are setting up “lines of credit” designed precisely to circumvent the few consumer protections of the new payday lending law. Let’s not take the approach of appeasement toward another predatory lender.
– Jeremy P. White is an attorney in Lynchburg.