Four years ago, Virginia lawmakers cracked down on payday
lending. They limited borrowers to one payday loan at a time, and
doubled the length of time they had to pay the money back. It
worked. Payday loans plunged more than 80 percent. A few lenders
left the state completely.
But it also didn’t work. The reforms created a vacuum being filled by a new form of short-term lending: car-title loans.
In a payday loan, the borrower writes a post-dated check to cover the loan amount, plus fees. In a car-title loan, the borrower puts up a vehicle as collateral. Since 2010 the number of car-title lending companies in Virginia has more than doubled. Last year, they made more than 128,000 loans, worth an aggregate $125 million. They also repossessed nearly 8,400 vehicles.
Legislation to cap interest rates on payday and car-title loans died last year. It likely will come up again. But some localities don’t want to wait. Officials in Chesterfield want to ban such lenders from the county entirely. This is probably a fool’s errand; shutting down lenders won’t make demand disappear. Borrowers in need of quick cash may just cross jurisdictions – or turn to even more risky sources, such as the Internet.
It’s easy to understand Chesterfield’s position when you hear stories like that of Manassas resident Brenda Ann Covington. A while back she borrowed $1,500, and put up her 2005 Chevy Silverado as collateral. Somehow she ended up owing $4,100 – and could have lost a vehicle worth much more. On the other hand, there is no shortage of horror stories about commercial banks, either – as anyone burned in the recent housing bubble can attest.
Read more: http://reason.com/archives/2012/10/24/payday-lending-convenient-service-or-evi
But it also didn’t work. The reforms created a vacuum being filled by a new form of short-term lending: car-title loans.
In a payday loan, the borrower writes a post-dated check to cover the loan amount, plus fees. In a car-title loan, the borrower puts up a vehicle as collateral. Since 2010 the number of car-title lending companies in Virginia has more than doubled. Last year, they made more than 128,000 loans, worth an aggregate $125 million. They also repossessed nearly 8,400 vehicles.
Legislation to cap interest rates on payday and car-title loans died last year. It likely will come up again. But some localities don’t want to wait. Officials in Chesterfield want to ban such lenders from the county entirely. This is probably a fool’s errand; shutting down lenders won’t make demand disappear. Borrowers in need of quick cash may just cross jurisdictions – or turn to even more risky sources, such as the Internet.
It’s easy to understand Chesterfield’s position when you hear stories like that of Manassas resident Brenda Ann Covington. A while back she borrowed $1,500, and put up her 2005 Chevy Silverado as collateral. Somehow she ended up owing $4,100 – and could have lost a vehicle worth much more. On the other hand, there is no shortage of horror stories about commercial banks, either – as anyone burned in the recent housing bubble can attest.
Read more: http://reason.com/archives/2012/10/24/payday-lending-convenient-service-or-evi
1 comment:
I just do not understand why so many people have problems with payday loans. Car-title loans can be a good alternative, but only if you have a vehicle. Everybody knows that fast loans online have high interest rates because you pay for urgency. Also payday loan lenders require minimum information when they lend money and that’s very risky. I think that before getting a loan it’s necessary to learn all the information about it and compare with other options. Some people borrow money and only after they understand that the interest rate is high and do not know how to pay back.
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