Newly-proposed regulations could change payday lending in VA
RICHMOND, VA (WWBT) - Often called "predatory" for their high-interest rates, newly proposed regulations for the payday loan industry could offer protection to consumers.
The rules, proposed Thursday by the Consumer Financial Protection Bureau, would require lenders to consider an applicant's ability to repay the loan by checking income, payment history and important financial obligations.
The rules would also put a cap on the number of loans that can be made.
According to the State Corporation Commission, in 2015, Virginia payday lenders made more than 350,000 loans totaling more than $137 million to more than 112,000 borrowers.
The average borrower took out more than three loans per year at an average annual interest rate of 231%.
Virginia Attorney General Mark Herring praised the CFPB's proposed rules, saying the regulations could give Virginians "some badly needed protection."
I'm really encouraged to see the CFPB stepping up to address predatory lending in a way that could offer financially vulnerable Virginians some badly needed protection from these products which, in many cases, do nothing but trap borrowers in an expensive, endless cycle of debt. Virginia has developed an unfortunate reputation as a place where predatory lending thrives, and unfortunately the General Assembly hasn't been willing to fight for Virginia consumers.
The CFPB proposals, including an "ability to pay" test, expansion of safer loan products, and limits on overdrafts or multiple loans, can be important safeguards for Virginia consumers. My team and I will be closely reviewing the proposed rule in the coming weeks.
According to the Attorney General's office, Virginia car title lenders in 2015 made more than $161 million in loans to more than 134,000 borrowers with an average APR of 221%. More than 20,000 borrowers had their car repossessed and more than 16,000 had their car sold.
The CFSA, The Community Financial Services Association of America, which is the national organization for small dollar, short-term lending or payday advances, says on their website that, "Efforts by legislators to regulate the terms of small consumer loans (such as by imposing price caps on fees or limitations on use) almost invariably produces negative unintended consequences that vastly exceed any social benefits gained from the legislation."
The CFSA added that, "If the existence of payday lending is valuable for those facing personal disaster in a way that other financial institutions cannot provide, then regulators should strive to make access to finance easier and more affordable, not ban it."
The proposed rules are open for public comment until September 14.
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