THE TOUGH CUSTOMER- 240 percent: Why the AG's looking at car loans

When I first looked into Estelle Williams' car title loan from Instant Cash on High Street, I was surprised ["Predatory practices? Car title lender backpedals," December 13]. Perhaps I'm naïve, but how, I wondered, could a loan with a 240 percent interest rate be legal?

Well, it turns out that not only is it legal, but the entire car-title lending industry in Virginia is completely unregulated.

E. Joseph Face, Commissioner of the Virginia Bureau of Financial Institutions (BFI), explains that car title lenders typically structure their deals as open-end credit– similar, at least in theory, to a credit card– which removes them from the purview of his or any other state agency.

Not that regulation by the BFI would necessarily make much of a difference. 

After all, the BFI regulates payday lenders, and the interest rates they charge are just as high, if not higher in many cases, as those charged for car title loans.

Even though the state registers and regulates its 800-plus payday lending offices, the law does not impose an interest rate cap on their lending.

But after taking a look at Williams' loan documents, Senator Creigh Deeds (D-Bath County) says a 240 percent interest rate, whether a payday or car-title loan, is "legalized loan-sharking... and from any perspective, that's unconscionable."

Payday and auto-title lenders argue, however, that they're frequently lenders of last resort for many people, and that they need high interest rates to turn a profit. Critics allege that the loans trap people in a cycle of high-cost debt from which they cannot escape.

Williams, for example, claims to have paid Instant Cash more than $1,000 over a period of 18 months, but barely made a dent in repaying the principal on her $230 loan.

Attempts by the General Assembly in past sessions to cap interest rates for payday loans at 36 percent have gone nowhere. Little wonder. The consumer lending industry is among the state's more generous political contributors, donating nearly $340,000 to legislators last year.

Deeds, however, thinks there may be a "legitimate chance" to pass a cap this year. He notes that the GOP leader in the House of Delegates recently said there is now a majority in support of a cap, and that the Democratic additions to the Senate increase support there as well, although a measure last year was able to garner only 11 votes.

An interest rate cap bill has already been pre-filed for the upcoming session.

As for the car-title lenders, an effort last year to regulate them died a quick death in committee, and the future of another one this year is uncertain now, according to both Deeds and Face.

Deeds says one concern he heard about regulating car-title lenders was that regulation would provide the industry with legitimacy, which could cause their numbers to proliferate and make the problem worse. That's what happened in 2002, when the state first regulated payday lenders.

Still, Deeds acknowledges car-title lenders are "out there... [and] we have to get a handle on that."

One state official willing to take on the industry, at least on an individual basis, is Attorney General Bob McDonnell. He investigated and settled cases with three car-title lenders last year, two in Virginia Beach and one in Northern Virginia. The settlements included interest refunds and forgiveness for borrowers.

In the Virginia Beach cases, the lenders' open-end credit didn't pass muster because they failed to provide a minimum 25-day grace period for borrowers to repay the loan without incurring a finance charge. That made the loans subject to the state's Consumer Finance Act with its 12 percent limit on allowable interest.

Seems like a clear enough requirement, but Williams' loan from Instant Cash clearly states, "There is no grace period on finance charges."

As I reported, when I started asking questions, Instant Cash canceled William's loan and returned her car. Nonetheless, her loan documents are now in the hands of the Attorney General's office, which has told me that consumer attorneys will take a look and get back to me.

In case you need it, the Attorney General's office can be reached via its website,, or 804-786-2071.