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Car Title Loans Becoming Controversial Issue in Virginia – Blessing or Rip-Off?

5 comments

With the slowing of the economy, car title lending in Virginia has grown like a cancer. And it has become next to usurious for people who want to borrow money using their cars as collateral. A simple change in Virginia law, prompted by Virginia (State) Senator Richard L. Saslaw (D-Fairfax) paved the way for this method of lending to people who may not otherwise have access to cash. But 240 Percent interest on a truck title loan has nearly driven Brenda Ann Covington, 61, of Manassas, into a financial hole she says in a recent Washington Post article. She also says it’s her own fault for pawning her 2005 Silverado truck for $1,500 loan. She will pay back more than $4,500 when she’s done, and if she should default, the car title lender will repo and re-sell her car. “Highway robbery,” she says. Apparently Sen. Saslaw, who received “more campaign contributions [approximately $73,000 worth according to WP’s Kunkle] from the Consumer Finance Industry than anyone else in the Virginia General Assembly”, doesn’t think so.

House Delegate Scott Surovel, (also D-Fairfax) who voted against the change, notes “six of the sixteen licensed car title lenders in Fairfax County have set up shop in the Route 1 corridor” where they essentially prey on low income families and poorer immigrants who live and work there and who need cash. Car title loans are frequently written with conditions far worse than payday loans. Of course, Sen. Saslaw thinks the loans should be regulated. Meanwhile, the law caps interest at 22 percent interest per month on a loan of up to $700, and 18 percent per month on loans of up to $700 and between $1400. Lenders can’t write loans for more than half a vehicle’s book value (See the National Automobile Dealers “Blue Book”.)

To those not desperate for cash, it seems foolish for people to get these types of loans, knowing that they are a rip-off. Why sign on the dotted line? The answer is cash flow, or to pay another loan, which starts a vicious cycle. Why are these loans not a violation of usury laws you may ask? Virginia's usury law states that the generally recognized maximum legal interest rate is 12%. This is the maximum legal rate of interest for which there is no special carve out under the law, or, said differently, for which special interest lobbyists have yet to achieve an exception. Car title loan companies have gotten that carve out, or license to loan at what amount to usurious rates.

The industry presumably would respond that no one is making these people sign these loan contracts and that they are just providing a much-needed service to those in need. There is some truth to the latter. But the question is, could this "service" be provided more fairly, without taking unfair advantage of people? Making a profit is not a bad thing, but doing it in this fashion may be, depending upon who is discussing the topic. Would you want this happening to a loved one? Would it be fair then?

Perhaps, when the Virginia General Assembly convenes in January, there will be a move to reduce the cap on the monthly interest rates of these kinds of loans or, as Sen. Saslaw suggested, regulate them so that those who are least prepared to lose their shirts do not get ripped off. One purpose of government is to regulate the heartless, and perhaps this industry comes close to fitting that description, notwithstanding the fact that those folks signing the contracts are doing so voluntarily. It is a thorny issue indeed.

5 Comments

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  1. K.Cooper says:
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    Consumers should br trusted to manage their own finances and choose for themselves from the widest possible array of credit products. With that freedom of choice comes a responsibility to honor your word and pay your debts. We can’t just replace that responsibility with legislation.

  2. Greg Webb says:
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    Mr./Ms. Cooper:

    I appreciate and understand your comment. And, if someone signs the dotted line, then they are bound to repay the debt in most cases. My point is more philosophical I guess: are these loans conscionable? Should they be legal in the first place? Should there be limits placed on the avarice of loan companies? If so, is this a place where there should be more limits?

    Greg

  3. SD says:
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    there’s no substantive analysis in your post, just knee-jerk high-rate-loans-are-bad hysteria. you actually come close to the right answer, but miss it due to your hysteria. why are people taking out these loans? they NEED cash, but other credit options are unavailable. the usury law is actually screwing them over. they would rather get an unsecured loan at higher than 12%, but because they can’t they get a title loan. well-intentioned regulators like yourself are unintentionally harming people who need access to credit. you focus on those who don’t repay, but are blind to the many more who DO repay and are helped by the availability of credit. this is a common mistake, but it’s still a mistake.

  4. SD says:
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    Your follow-up comment just exposes your lack of thinking.

    “My point is more philosophical I guess: are these loans conscionable? Should they be legal in the first place? Should there be limits placed on the avarice of loan companies? If so, is this a place where there should be more limits?”

    None of this is “philosophical.” How does the 12% cap make any sense? There was once a time when ANY interest was considered wrong. What are the APRs on YOUR OWN CREDIT CARDS? Probably more than 12%. If credit cards were forced to comply with that cap, you wouldn’t have any credit cards. Would you be made better off by that?

    Do you even think through your posts?

  5. Greg Webb says:
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    SD,

    Thank you for engaging in a very meaningful discussion. With your profound thoughts you have convinced me of the error of my thinking! (Also, I am not a “regulator”).

    Greg

    P.S. – See, http://www.merriam-webster.com for the meaning of “philosophical”