Proposed regulations for car-title loans draw fire
Payday lenders are complaining that proposed State Corporation Commission regulations on car-title loans will put an unfair crimp in their business.
But in filings with the commission over the past several days, consumer groups said the proposed regulations would prevent misleading practices common in loan offices and keep consumers from getting in over their heads and losing ownership of their cars.
Car-title loans are open-ended loans, basically lines of credit, secured by a vehicle.
The SCC proposal would:
- require borrowers turn over their car titles to the lender, so the title can be sent to the Department of Motor Vehicles to record the new credit line.
- bar lenders from using a car title to secure credit lines if the vehicle already secures another loan, such as the amount the owner borrowed to buy the vehicle.
- requires other loan businesses sharing space with a payday lender to comply with existing regulations on payday loans.
"Such a regulation is unnecessary and unduly burdensome," Tommy Moore, executive vice president of the Community Financial Services Association of America, a trade association for makers of small loans, wrote to the commission.
Carla Stone Witzel, an attorney for Cash-2-U Payday loans, said the regulations flout the legislature's intent in this year's effort to tighten rules for payday lenders.
She said the legislature specifically made clear that car-title loans were allowed.
Payday-loan companies and their association have contributed more than $1.3 million to Virginia politicians during the past five years and spent more than $160,000 lobbying the legislature last session, according to data collected by the Virginia Public Access Project and from the secretary of the commonwealth's office.
"Practical considerations need to be taken into account," Witzel said.
But the Virginia Poverty Law Center, a nonprofit group, said the proposed regulations would protect consumers.
"A borrower . . . should be fully aware that that he has given the lender a lien on his vehicle and that he may lose his vehicle if he doesn't repay the loan," the center's executive director, James W. Speer told the commission.
"This will not necessarily be clear to the borrower unless he is required to surrender his title."
Virginians Against Payday Loans, a lobbying group calling for tighter control of small, high-interest-rate loans, said state law requires that liens against a car be recorded on the title.
Banning car-title loans on cars already being financed "would reduce the opportunity for aggressive lenders to lure borrowers into loans which they are not capable of repaying," the group's lawyer, David W. Clarke, added.
But Patricia Dauterman, director of compliance at Approved Cash Advance, a lender, said car-title and payday loans are valuable to many Virginians who can't get credit or loans from mainstream banks.
She said her company is concerned that tightening rules on car-title loans will hurt Virginians.
Contact David Ress at (804) 649-6051 or
.
Reader Reactions
They are lobbying group calling for tighter control of small, high-interest-rate loans. Alternative financial services come under fire as being predatory, but the numbers don’t work to prove it, and never have. A recent study was done on the financial services, including alternative financial services like check cashing, money orders, and payday loans, by a coordination of the University of Michigan and the Federal Reserve on low to middle income (LMI) families in the Detroit area. They found that alternative services, including payday lenders, cost less than traditional services, such as NSF fees, bank account fees, credit card fees, etc. did. That would at least lend credence to alternative financial services, including payday loans, as an innovation against traditional services that benefit from unrepentant government favoritism, such as bailouts.
The two proposals reported above are reasonable and, if the lender is ethical and adheres to prudent lending practices, in the best interest of the lenders themselves.
For example, the proposal to “require borrowers turn over their car titles to the lender, so the title can be sent to the Department of Motor Vehicles to record the new credit line” insures the lender’s security interest is a matter of public record and, thereby, prevents that same title from being used elsewhere to borrow money of which the first lender is unaware.
The second proposal to “bar lenders from using a car title to secure credit lines if the vehicle already secures another loan, such as the amount the owner borrowed to buy the vehicle” likelwise protects the lender’s interests by effectively discouraging the borrower from incurring additional debt of which the first lender is unaware. No ethical, prudent lender would lend in circumstances other than those enforced by the new proposals.
Therefore, a reasonable person would conclude the lenders who oppose these requirements are guilty of using poor business practices but profit from making loans at extremely high rates so that losses on defaulted loans are of no real concern to them.
As I see it, the proposals protect consumers by limiting their abilities to incur excessive debt and benefit ethical lenders by protecting their security interests in cars used as collateral.
“Posted by dogtired on November 04, 2009 at 7:11 am
Can we say semi-legal loan shark?
I though we could”
The road to he-1-1 is paved with the best of intentions. Cut these guys out and all you will do is deny credit to those who need it (and have bad credit scores so banks wont touch them). Then of course as defaults sky rocket (for such trivial stuff as mortgages, rent, other loans, etc.) we will hear the wailing and gnashing of teeth on how evil banks are and that “there otta be a law!“. Which is what caused the housing crises (forcing lenders to make bad loans).
ANd on top of that, the poor schmuck with no options will have to go to a real loan shark - where a broken limb or skull is small compensation in comparison to a title loan.
But then we will all sing Kumbaya because we did what was “right” against those evil money grubbers.
Yep, I can see where liberal compassion is still killing people.
This is how unbridled lobbying begins to affect our personal freedom. They have an inordinate say in our lives and in the policies of our elected officials. I don’t want these endless groups of so-called advocates, financed by God-knows who, getting in my business in the name of protecting me. Protect me from lobbyists!
I think requiring the lending company have the title to a vehicle is reasonable. If the lein is not recorded with the DMV, the owner has to simply apply for a lost title to sell his vehicle. If there is an existing loan on the vehicle, the owner does not possess the title so he could not get a loan on an already financed vehicle. Anyway, most vehicles with an existing loan on them are upside down (loan is more than the car is worth) so the loan company does not have any potential recovery if the loan is not paid.
Can we say semi-legal loan shark?
I though we could
“Carla Stone Witzel, an attorney for Cash-2-U Payday loans, said the regulations flout the legislature’s intent in this year’s effort to tighten rules for payday lenders.
She said the legislature specifically made clear that car-title loans were allowed.“
What horrendous BS. Does Ms. Witzel really think that the legislature’s intent was to allow any kind of payday lending as long as a car title was involved or that their intent was to allow secured, collateralized lending?
A second lien on a vehicle is generally no collateral at all. Taking an unperfected security interest with an unrecorded lien on a car title isn’t collateral, either.
It’s long past time for this industry to grow up and adopt a business model that’s a step higher than “slimeball”.
Post a Comment(Requires free registration)
- Please avoid offensive, vulgar, or hateful language.
- Respect others.
- Use the "Flag Comment" link when necessary.
- See the Terms and Conditions for details.
Advertisement