Obenshain’s LoanMax bill
Posted by Brent Finnegan on January 10th, 2008
Senator Mark Obenshain just introduced SB565, a bill that would regulate an unregulated industry: car title lenders.
Car title loans are similar to payday loans, except the lender gets your car title in exchange for a high-fee, high-interest loan. If you can’t pay them back, they repo your car and sell it. Car title lenders, such as LoanMax, are unregulated in the Commonwealth. No one knows the exact number of car title lenders in Virginia, because they do not have to register with the State Corporation Commission.
Last year, there was a small push within General Assembly to “regulate” (or in come cases, to help legitimize) the industry, which failed. Other bills to cap the interest rate at 36 percent also failed.
Here’s an excerpt from Obenshain’s bill summary:
The measure caps the interest on such loans at 20 percent per month for the first two months and three percent per month for the balance of the term. If such a loan is repaid in full within 48 hours, the loan shall not bear interest. The maximum term of such a loan is 12 months. The maximum amount of a motor vehicle equity loan is 50 percent of the value of the motor vehicle. Lenders are required to be licensed with the State Corporation Commission.
That’s still being very “generous”. I’m glad that someone is actually considering it though.
I’ve been asking around about this bill. I couldn’t tell if this was actually a bill to regulate/crack down on these lenders, or if it was another industry-backed bill like the one Terry Kilgore submitted last year.
Here’s what I’m hearing “from the grapevine” about it: Obenshain has had some conversations with at least one well-known consumer advocacy lawyer in town who either convinced or encouraged Obenshain to submit this bill. So this may actually be what it appears to be.
“Hey David—why don’t you be “generous” and YOU offer these people a loan for less if you think you can. Put your money where your mouth is.”
Corysharpe,
Because DM opposed usurious car title lending, you feel he should offer the service himself. Under that argument, anyone who opposed drunken driving should open a bar.
My opinion on title loans aside, I have to agree with JG’s assessment of Cory’s logic.
I must say that I do like Obenshain’s plan, as it does allow for profit margin via interest, but puts a cap on it and makes the companies register with the SCC, which I think is a good thing (at least to track the companies).
David, you feel this is “generous”, what would you suggest?
It seems like the focus of this legislation is to run these businesses out on a rail, and not on providing better alternatives to the people who need the money bad enough to take out these loans. I think Cory has a point that if someone could come along and offer these type loans at a better rate, it would’ve been done by now.
Phil
I think that the federally capped APR of 36% is fair. Fair to the lenders.
Let’s see….
If Joe Sixpack has a car that is valued at $2,000.00, it qualifies him to borrow $1,000.00.
So if he takes advantage of this opportunity, at the end of the first month he will be required to pay back the $1,000.00, plus $200.00 in interest. If, as might be expected, (since he couldn’t come up with the money he thought he needed to begin with, and it would seem hard to come up with a spare $300.00 per week for repayment) he needs to roll it into the second month, it will cost him another $200.00 in interest to pay himself out of debt.
At three percent interest per month for the remaining ten months of the year specified, if Joe continues to not have enough money to pay off his loan, he will have accrued interest of another $300.00 bringing his total interest for borrowing $1,000.00 to $700.00. And this is if the interest is only applied to the original amount borrowed….
If however, which is not spelled out in this bill, the interest is applied to the total amount of the carryover, as is done with credit cards, then each time the loan is continued, the previous interest is included as principal, so therefore the next interest is figured on a greater amount…
So, by the time the end of the year rolls around, when his car has depreciated in value compared to the original valuation for purposes of the loan,… Joe now finds that his car is of less value that what he owes…
Who benefits from this dance????
I would submit,… The lendor…
Lender…. Sorry for the spelling blunder.
Peter
I disagree with a few of your points. First; as Lowell pointed out, these bills will not run “anyone out on a rail”. These bills are designed to appease us. That’s all. Unfortunately they are inadequate at appeasing anyone since they solve nothing. Second; Your assertion that “if someone could come along and offer these type loans at a better rate, it would’ve been done by now”. That’s not how capitalism works. If someone can get away with making this much money and charging this rate of interest then they are going to (have no illusion about it, it is interest because interest and fees are one and the same according to the IRS, The World Bank, The US Government and the Catholic Church, to name a few). Plain and simple.
Mr. Miller has a curious understanding of market conditions. I always thought that competition drove the price (interest) downward. Seems like a basic ecomonic theory to me.
Gee, imagine that, Virginia trying to regulate predatory practices. Something many other states have done a long time ago. Like everything else Virginian, 20 years behind.
from whsv
http://www.whsv.com/home/headlines/39184192.html
A House of Delegates committee has killed a bill that would have cracked down car title lenders.
Del. Joe Morrissey’s bill would have capped the annual interest rate the lenders could charge at 36 percent. Currently, car title lenders charge 25 to 30 percent interest each month, and when borrowers fall behind they lose their vehicle.
Morrissey likened the lenders to loan sharks, and said they pray upon those who can’t get traditional credit. Opponents said they provided a needed service to those who don’t qualify for credit cards or other loans.
A similar bill in the Senate is expected to come up for a committee vote next week.