Editors’ Note: This article is excerpted from Dick Saslaw’s Predatory Lender Problem–and Ours by kindler in Blue Virginia, January 14, 2019. Posted with permission.
“’It’s not predatory,’ says Senate Democratic Leader Dick Saslaw, who has taken about $37,000 from TitleMax in the last decade. He says if people…didn’t have access to businesses like TitleMax, they would find other ways to get the money.” – WAMU, 2015
Societies are weighted down by corruption when their leaders cut too many deals with wealthy interests and cut too many corners to consummate those deals. Ultimately, such corruption manifests itself in ways that you can see. It’s no exaggeration to say that the predatory lending industry harvests money from Virginia’s poor, sending a portion to Saslaw’s pockets to keep the heist going. And that is a problem for a Democratic party determined to live up to its reputation as the party of the people, not the predators before your very eyes.
Like, say, the long line of storefronts on major Virginia roads with names like Titlemax, Loanmax and Advance America. These are the predatory lending firms that have sprouted up in Virginia because the General Assembly – with major leadership from Senate Democratic Leader Dick Saslaw – invited them in.
Even as a majority of other U.S. states have done a better job of reining in – if not outright banning – predatory lenders, Virginia has consistently allowed enough loopholes for this industry to thrive.
Journalist Michael Pope did a superb series for local public radio station WAMU in 2015 tracing the history of the predatory lending industry in Virginia. This industry has two major faces in the Commonwealth, based on the limited forms of collateral their lower income targets have to offer:
- Payday lenders, who use the promise of your next paycheck for their loans;
- Car title lenders, who use your car as collateral.
The Virginia General Assembly legitimized the former in 2002 with the Payday Lending Act, causing the volume of such lending to expand eight-fold by 2008, to about $1.3 billion. Annual interest rates ballooned as high as 800% before the legislature capped them at 36% in 2008.
Before long, however, the predatory lending industry was lobbying for official sanction for another of its practices – car-title lending, which was pitched as “safer” because it involved actual collateral that could be repossessed: the borrower’s car. Never mind that doing so can cripple the ability of poor borrowers to make a living in a region where long commutes may be unavoidable.
in surrounding states, like D.C., Maryland and North Carolina, where car-title lending is illegal. After that, car-title lending locations in Virginia exploded by 500% — believable if you count the number of such storefronts clogging Northern Virginia thoroughfares like Routes 1 and 7.
Many studies have documented how the business model of predatory lenders is based on trapping low income people in cycles of debt that regularly end up costing them more than they sought to borrow in the first place. The Consumer Financial Protection Bureau (CFPB) found the median payday loan borrower taking out TEN such loans from a single lender in a year, thereby being forced to pay $458 in fees alone for the original $350 in loan principal. The Center for Responsible Lending found such “loan churn” to account for an astounding 82% of payday loan volume.
Payday loans are based on the premise that a borrower will repay the loan in two weeks once their next paycheck – to the value of which the lender claims a legal right – has cleared. In fact, the quick repayment period, balloon payment and high interest rates combine to make repayment very difficult for people who, by definition, are having trouble making ends meet.
As for car title loans, TitleMax admitted in court that the typical car title loan is refinanced 8 times, while 2012 data from Virginia found almost 10% of borrowers’ cars getting repossessed.
All of these facts contradict the soothing rhetoric from the industry that they are doing their customers the huge favor of giving them access to credit.
The Community Financial Services Association claims that its members’ predatory practices save low-income consumers from bank overdraft fees, bankruptcy and “seeking out illegal, offshore, or unregulated lenders.”
The days when Virginia Dems could explain away anti-consumer, anti-public health, anti-environmental positions by mumbling about “the Virginia Way” and this being a conservative Southern state, etc. are over. The increasingly blue tint of the Commonwealth demands that we be true to our Democratic principles – and that we stop allowing destructive corporate practices not tolerated in many other states, including transparently predatory lending practices that drive already poor Virginians into bankruptcy.
It’s time for a New Virginia Way, one that puts the needs of our citizens before the cynical transactions of industries that exploit both our government and residents.