VPLC Supports Legislation Regulating Line of Credit and Open-end Credit Lenders
Thursday, January 10th, 2019
Virginia law regulates payday and car title lenders by allowing them to charge extremely high interest rates in exchange for requiring them to be licensed and putting some restrictions on their business practices.
Many storefront payday lenders have switched to open-end or line of credit loans to avoid any regulation. Many internet lenders are also switching to open-end credit to evade Virginia laws and regulations. The end result is enormously problematic: these lenders are making loans and charging 300% and greater interest rates with no regulation at all, creating confusion for consumers who believe they have a payday loan when they may, in fact, have an open-end credit loan.
We don’t know all the businesses engaging in this practice, and there is nowhere to file complaints because they are not licensed or regulated. The practice is also unfair to payday, car title, and consumer finance companies that are getting licenses and complying with restrictions on their businesses.
Senator Dick Saslaw’s bill (SB 1266) follows the same statutory model as the Payday and Car title loan Acts, which allow high interest by imposing licensing and restrictions in exchange.
The bill does not impose an interest rate cap on open-end credit loans; however, if the lender chooses to make loans that charge more than 36% APR, then the lender must be licensed, and four restrictions are imposed on their business practices (these restrictions are from the Payday Loan Act):
- The lender may not obtain from a borrower an authorization to electronically debit the borrower’s deposit account;
- The lender must comply with certain restrictions and prohibitions applicable to debt collectors contained in the federal Fair Debt Collection Practices Act;
- The lender cannot file a legal proceeding against a borrower until 60 days after the date of default on an open-end credit plan, during which period the person and the borrower may voluntarily enter into a repayment arrangement; and
- The lender cannot loan more than $500.
The bill also prohibits a person licensed as a motor vehicle title lender from extending credit under an open-end credit plan.