By Dana Wiggins and Benjamin Hoyne
We have been battling predatory lending in Virginia for more than 20 years. The Virginia Poverty Law Center’s hotline has counseled thousands of payday and title loan borrowers trapped in a cycle of debt.
For many, an unaffordable payday loan of a few hundred dollars due back in one month quickly became an anchor around their necks. Many borrowers eventually ended up paying more in fees — sometimes thousands of dollars more — than they borrowed in the first place.
These debt trap loans have siphoned billions of dollars from the pockets of hardworking Virginia families since payday lending was authorized here back in 2002. Faith communities throughout the commonwealth have offered financial support to borrowers when predatory loans caused them to get behind on rent or utility payments. Seeing the devastation that these loans caused in their congregations, clergy have been at the forefront of the campaign to fix modern-day usury in Virginia.
Sadly, the Consumer Financial Protection Bureau, the federal watchdog charged with regulating payday and title lenders, has become a lapdog for the high-cost lending industry. Last month, the CFPB eviscerated modest federal regulations for payday and title loans issued in 2017. They did this without providing any new research or evidence to justify their action. This means borrowers in 35 states will be at the mercy of unscrupulous lenders who are eager to take advantage of people in dire financial straits, especially as the COVID-19 pandemic rages on. Thankfully, Virginia has just taken much-needed action to protect consumers and is leading the way absent meaningful federal rules.
Our state law was badly broken. Lenders charged consumers in Virginia prices three times higher than the very same companies charged for loans in other states. This April, our General Assembly passed the Virginia Fairness in Lending Act, comprehensive new rules for payday, vehicle title, installment and open-end credit.
The new law was designed to maintain widespread access to credit and ensure that every loan made in Virginia has affordable payments, reasonable time to repay and fair prices. Lenders who operate in storefronts or online are required to get a Virginia license, and any illegal high-cost loans will be null and void. We’ve replaced devastating loans with affordable ones and leveled the playing field so lower-cost lenders who offer transparent installment loans can compete in the marketplace. Virginia, which used to be known as the “East Coast capital of predatory lending,” can now tout some of the strongest consumer protections in the nation. The law goes into effect Jan. 1 and is expected to save loan customers at least $100 million a year.
The final push to get Virginia’s landmark reform over the finish line was led by chief co-patrons Sen. Mamie Locke, D-Hampton, and Del. Lamont Bagby, D-Henrico, and it garnered strong bipartisan support. The legislation had more than 50 co-patrons from both sides of the aisle. This effort also had key support from Attorney General Mark Herring and Gov. Ralph Northam.
Virginia’s victory against predatory lending is the result of bipartisan, statewide efforts over many years. Hundreds of consumers stood up to predatory lenders and bravely shared their stories with policymakers and the media. Advocates and community organizations from every corner of the commonwealth have encouraged responsible loans and demanded an end to predatory lending.
Local governments and business leaders took action to protect consumers and their own employees against predatory lending. Year after year, legislators including Democratic Sens. Jennifer McClellan and Scott Surovell, as well as former Republican Dels. Glenn Oder and David Yancey, carried legislation even when the odds of passage were long.
This year, prominent bipartisan champions included Dels. Sam Rasoul, Jeff Bourne, Jason Miyares, and Chris Head and Sens. Barbara Favola, John Bell, Jill Vogel, David Suetterlein, and John Cosgrove. Before voting yes on final passage, Sen. Cosgrove called the day Virginia authorized payday lending in the first place “a day of shame” and encouraged support for reform to protect borrowers during the pandemic. Finally, after years of effort, our bipartisan coalition had built enough momentum to right a decades-old wrong and stop the debt trap.
As the federal CFPB has left consumers to fend for themselves against predatory lending, we are proud that Virginia is setting an example for states across the country. We have proven that comprehensive, bipartisan reform is possible at the legislature, even in the face of powerful opposition. And we join Colorado and Ohio in the ranks of states that allow small loans to be widely available, balancing access with affordability and fair terms.
One day, hopefully our success in Virginia will serve as a lesson for policymakers who are serious about protecting borrowers and the public interest. In the meantime, we’ll be working to implement the Virginia Fairness in Lending Act and defend our hard-won victory that was more than 20 years in the making.
Dana Wiggins is the director of outreach and consumer advocacy at the Virginia Poverty Law Center and Benjamin Hoyne is the policy & campaigns director at the Virginia Interfaith Center for Public Policy.