Restricting short-term loans in Virginia will hurt consumers

Posted: 2/25/2020

Daily Torch – 2/3/2020 (reprinted)

By Rick Manning
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The Virginia legislature is rushing to pass a bill that would have disastrous consequences for Old Dominion residents.

In the coming weeks, a law that would cap at 36 percent the interest rate on short-term loans up to $2,500 and impose other limits on lenders will be voted on in the General Assembly after the bill passed through committee.

Rep. Terry Kilgore argues the potential adverse impacts of the bill are not being thoroughly considered. “We have no statute to cover somebody offshore. [The bill is] going to drive a lot of people to the internet and offshore lending,” he said.

In contrast to this hastily assembled bill, the current small-dollar lending regulations were carefully crafted by lawmakers, in consultation with stakeholders representing consumers and lenders, to balance access to credit while preserving critical consumer protections.

The new bill would undo these regulations in favor of measures restricting Virginians’ consumer choice, forcing those who need cash to turn to unregulated sources.

People in need of cash to pay bills or cover unexpected expenses like car repairs will not disappear after this law is passed. Virginians will instead turn to unregulated lenders, pawnshops and lenders who are uncompetitive in Virginia, but who will offer loans if the state drives their competition out of business.

Several out-of-state lenders publicly support the bill and promise to provide loans in Virginia if the bill passes. There is no guarantee these businesses, who have no track record of serving Virginia consumers, will be reliable lenders. Additionally, most of these companies have strict standards that would exclude many of those who use short-term loans.

What’s more, if these outside corporations offered a better deal for Virginia consumers, they would already be winning the business of consumers due to their superior, lower-cost product.

The simple truth is that the legal, regulated short-term loan business met needs that traditional banking establishments failed to meet.  In fact, the usurious fees for account overdrafts contribute greatly to the de-banking of our nation’s least affluent consumers.

Before hastily enacting a rate cap, the Virginia legislatures needs to consider…

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