Proposed Virginia Car-Title Loan Regulations are Criticized

November 16, 2009

You see the care loan title businesses everywhere and they are often payday loan operations also. Some people are opposed to these businesses because the lenders charge excessive interest rates and fees on the assets of desperate consumers. To some these places are like predatory lenders rather than legitimate operations.

The Virginia State Corporation Commission has proposed regulation changes that are intended to stop what it considers unfair or misleading practices by title lending companies. Some consider these proposals to be unnecessarily harsh and unfair.

The State Corporation Commission has proposed the following regulation changes. First, it wants businesses accepting car titles in exchange for loans to send those titles to the Department of Motor Vehicles. This is so the lien against the title can be recorded at the state level.

Second, the state wants to limit loans against car titles to one. In other words, consumers could only borrow money if there are no other credit lines secured with the auto title.

Third, the state wants loan businesses that are operating with payday loan operations to have to follow the same regulations. This refers to car title businesses and payday loan businesses that share the same space.

The reason the state wants a borrower to surrender the car title is because that makes it clear to the consumer the car title now has a lien on it. It is a physical act that clearly reminds the borrower the car can be repossessed in the event the loan is not repaid.

Not everyone is happy with these proposals. The vice president of the Community Financial Services Association of America is Tommy Moore. He said, “Such a regulation is unnecessary and unduly burdensome.”

Though the purpose of the legislation is to prevent people from obtaining loans under false pretenses, some people feel the proposed regulations are unfair and violate the intent of the payday loan law.

The payday lender laws in Virginia do not prohibit car title loans. But there is a group called the Virginians Against Payday Loans that believes there should be tighter controls placed on the auto title loans and other small loans with high interest rates.

Some people view the payday loans and the auto-title loans in the same light as they view gambling. They believe these kind of loans prey on desperate people who should not be borrowing money just like gambling attracts people who cannot afford to gamble. By eliminating loans on autos that already have loans against the title there is much less opportunity for lenders to lure people into borrowing money.

In addition, if the lien against the title is not reported, it is possible to sell the auto as if it has a clear title. When a car is purchased at a dealer, the loan company keeps the title until the loan is paid off. The state regulations would have the state performing an equivalent role when the loan is made by an auto title lender.

Opponents of the new state regulations believe that payday and auto title loans serve an important purpose. These types of loans make credit available to people who could not get loans elsewhere.