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Consumer Advocates Push to End Pricey Small Loans

Delegate Lamont Bagby speaking at a podium in the House chamber.
Del. Lamont Bagby (D-Richmond) is sponsoring legislation he says will give borrowers better options for small loans. (Ben Paviour/VPM News)

Consumer protection advocates say Virginia has some of the weakest laws in the country when it comes to small loans, with some interest rates exceeding 300 percent. They’re pushing a new comprehensive bill designed to tighten loopholes and cap interest and fees.

The so-called Virginia Fairness in Lending Act cleared its first committee vote on Thursday. But it is likely to face headwinds in a legislature that has traditionally been reluctant to make broad changes to smaller loans that carry high-interest rates.

The loans come in a variety of forms governed by a different patchwork of different laws: payday loans, so-called open-end credit, internet loans, and motor title loans. But Jay Speer, executive director of the Virginia Poverty Law Center, has watched clients pay out $15,000 for a $2,500 loan -- and still not clear their debt.

“People just pay and pay and they can’t get out of it,” Spear said.

The new rules would set up more uniform guidelines on interest rates and fees, which collectively could not exceed 50% of the cost of the original loan.

Payday and other lenders argued that the rules would cause them to close up shop, forcing consumers into black market loans or ones from unregulated foreign banks.

Robert Reich, president of Community Loans of America, said he would have to close all of its Virginia locations if the bill passed.

“We view this bill not as regulation, but as extermination,” he said.

Reich said his company closed branches in Ohio and Colorado after those states passed similar regulations. But proponents of the bill said that other lenders that operate in Virginia still have a presence in those states -- and, according to research from the left-leaning Pew Charitable Trust, charge as much as three times more for a similar loan.

The bill’s passage on a 14-8 vote on Thursday does not mean it faces an easy path forward. Advocates expect a tougher sell in the Senate.

Payday lenders are also one of the larger donor groups in the Assembly, donating nearly $1 million from 2018 to 2019, according to the Virginia Public Access Project. Senate Majority Leader Dick Saslaw (D-Fairfax), who chairs the Senate’s Commerce and Labor Committee, is widely seen as friendly to payday and other lenders.

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Ben Paviour covers courts and criminal justice for VPM News with a focus on accountability.
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