60 per cent of repossessed vehicles sold
RICHMOND (AP):Virginia car title lenders doled out nearly 128,500 loans worth more than US$125 million in 2011, according to data collected by the State Corporation Commission for the first full year under state regulation.
Car title lenders were unregulated in Virginia until October 2010, when a new law took effect that limited how much the companies can charge, how much they can lend and for how long. For years, Virginia regulators had no idea how many car title lenders operated in the state, how much interest they charged or how many loans they issued because the companies flew under the radar while advocacy groups fought for stricter regulation on payday loans.
Now the nearly 380 car title lending locations across Virginia are coming under closer scrutiny.
Car title lenders issued loans to 105,542 individuals in 2011, according to the data recently published by Virginia regulators. About 13 per cent, or 13,771 of those borrowers, failed to make a monthly payment on a car title loan for at least 60 days.
"Anybody that's behind 60 days - and it's only a one year loan anyway - is obviously just going to default probably," said Jay Speer, executive director of the Virginia Poverty Law Centre and a leading advocate against car title and payday lending. "It just shows what a defective product it is. ... It just shows what a totally unaffordable loan it is and just because people are signing up for them doesn't mean they have possibility of really repaying them."
When borrowers fall behind, their vehicles can be repossessed and are often sold at auction.
In 2011, car title lenders repossessed 8,378 vehicles and nearly 60 per cent of those were sold by lenders to recoup outstanding loans, the report shows.
Speer said repossessing vehicles "creates a downward spiral" for many of the borrowers, because it is typically their only car and makes it more difficult for them to earn a living.
"This is not an option that is good for anybody," Speer said. "This is absolutely a horrible idea."
Title lenders, however, argue the number of loans shows there is a legitimate need for such short-term credit. They argue that those with bad credit and struggling small businesses have nowhere else to turn for small loans.
"There continues to be a need for these types of loans for certain folks," said Scott Johnson, who represents Community Loans of America, which operates about 60 car title lending locations in Virginia. "A lot of our customers are in the trades industry - landscapers, plumbers, folks that need access to capital in order to be able to do their job but don't have the credit ability to obtain a loan from a bank or other sources."