Why Can’t Virginia Protect the Poor from Predatory Lenders?

RICHMOND, VA (December 23, 2014) – In this holiday season, when so many people are financially stretched and stressed, taking out a car-title or open-end loan may seem attractive to parents who want to honor their kids’ Christmas wish list or to others who may simply want to keep their houses heated. 

Car-title and open-end lenders market their loans as a quick source of holiday cash. All too often, unfortunately, these loans only increase families’ financial misery. With triple-digit rates of interest and no meaningful underwriting, car-title and other CopenhaverLargehigh-cost loans create a cycle of debt that lasts far beyond the holiday season. That is why the Virginia Interfaith Center and many other citizen groups are calling upon on Virginia legislators as well as federal officials to provide protection from these predatory lending companies. 

In late August of this year, a colleague and I had breakfast at a local café in Winchester. When the short-order cook overheard our conversation about predatory lending he said, “I’ve had one of those loans. I took out a car-title loan to help with some payments. I gave them the title to my car and a set of keys and they provided a loan that was about half the value of my car. I was three payments short of paying off that loan when I missed a payment because I was sick and out of work. The car-title loan company came and took my car (which was worth about twice the value of the initial loan) but they continued to send me bills for the loan!” Sadly, this cook’s experience is far too common. Virginia has become the East Coast capital for predatory lending.

Under pressure from citizens, Virginia passed positive payday loan reforms in 2008 in the Payday Lending Act. These protections have made payday loans somewhat less onerous, but payday loans have largely been replaced by triple-digit car-title loans and largely unregulated open-end loans that range from 250-360 percent. These loans lock borrowers in a vicious cycle of debt.

Only 20 other states allow title loans in some form. Four of our neighboring states (North Carolina, West Virginia, Kentucky and Maryland) do not allow these loans. It is past time for Virginia legislators to protect our citizens and ban these loans in Virginia. Within one mile of our house, my wife and I counted eight different companies offering these onerous loans. There are so many in Winchester because Virginia legislators, many receiving large campaign contributions from these companies, passed legislation to allow susceptible borrowers from others states to obtain these loans in Virginia. Our proximity to West Virginia and western Maryland makes Winchester an easy drive to obtain these extortionate loans. In 2012, West Virginia Attorney General Darrell McGraw filed suit against two Virginia companies while investigating consumer complaints in West Virginia.

There is no reason Virginia can’t do as well as neighboring states in protecting its most vulnerable citizens. If that is to happen, Virginia legislators will need to refuse campaign contributions from these lenders and provide protection from these predatory lending practices. It would be reassuring to know that the holiday spirit isn’t being exploited to enrich companies preying on the poor by trapping them in a merciless cycle of debt.

The Rev. John D. Copenhaver Jr. is professor emeritus of religion and philosophy at Shenandoah University, and a board member of the Virginia Interfaith Center for Public Policy. Contact him at jcopenha@su.edu.

Published in the Richmond Times-Dispatch.