Payday Loans
Many consumers who need cash quickly turn to payday loans—short-term, high interest loans that are generally due on the consumer’s next payday after the loan is taken out. The annual percentage rate of these loans is usually very high—sometimes 390% or more. In recent years, the availability of payday loans via the internet has increased significantly. Unfortunately, some payday lending operations have employed deception and other illegal conduct to take advantage of financially distressed consumers seeking these loans.
The Federal Trade Commission (FTC) enforces a variety of laws to protect consumers in this area. The agency has filed many law enforcement actions against payday lenders for, among other things, engaging in deceptive or unfair advertising and billing practices in violation of Section 5 of the FTC Act; failing to comply with the disclosure requirements of the Truth In Lending Act; violating the Credit Practices Rule’s prohibition against wage assignment clauses in contracts; conditioning credit on the preauthorization of electronic fund transfers in violation of the Electronic Fund Transfer Act; and employing unfair, deceptive, and abusive debt collection practices.
The FTC has also filed recent actions against scammers that contact consumers in an attempt to collect fake or phantom payday loan debts that consumers do not owe. Further, the FTC has filed actions against companies that locate themselves on Native American reservations in an attempt to evade state and federal consumer protection laws.
Car Title Loans
A car title loan is also a loan made for a short period of time—often for only 30 days. To get a car title loan, you must give the lender the title to your vehicle. The lender gives you cash and keeps the title to your vehicle. When it is time to repay the loan, you must pay the lender the amount you borrowed, plus a substantial fee—25% of the amount you borrowed, for example.
If you borrow $1,000 for 30 days, and the lender’s fee is 25%, you must repay the lender $1,250 30 days later. And if you are not able to repay the money when it is due, the lender may take or seize your car and sell it to satisfy the loan. This can be devastating for someone who relies on their car to get to work or to the grocery store.
In Virginia, payday loans are regulated by the Virginia State Corporation Commission. The state has enacted laws to provide some level of protection to consumers. As of July 1, 2020, Virginia has implemented significant reforms to its payday lending laws. Under the Virginia Fairness in Lending Act, the amount that can be borrowed is capped at $2,500, and loans must have a minimum term of four months (unless the monthly payment does not exceed 5% of the borrower's gross monthly income or 6% of net monthly income), with a maximum term of 24 months. Lenders can no longer charge more than 36% annual interest plus a maintenance fee (which is capped based on the size of the loan). For car title loans, the law also limits the interest and other fees that can be charged. Borrowers are given the right to repay the loan in equal installments over the loan term, and lenders must evaluate the borrower's ability to repay. The Federal Trade Commission (FTC) also enforces federal laws against deceptive or unfair practices by payday lenders, including violations of the Truth In Lending Act and the Electronic Fund Transfer Act. The FTC has taken action against payday lenders for deceptive practices and attempts to evade state and federal laws, including those operating on Native American reservations. Consumers in Virginia should be aware of these regulations when considering payday or car title loans and should report any suspected violations to the Virginia State Corporation Commission or the FTC.
