© September 18, 2015
ATTORNEY GENERAL Mark Herring is reorganizing his office's Consumer Protection division to bolster its focus on predatory lending. The move, long overdue and desperately needed, is part of a broader effort to protect Virginians from usurious businesses flourishing across the commonwealth with state lawmakers' support.
Herring, who recently announced plans to seek re-election in 2017, increasingly appears willing to use his office to fill a void created by a legislature that has abdicated its duty to protect the public from unseemly businesses.
Instead, lawmakers have permitted the consumer credit and payday lending industry to wreak financial havoc on lower-income Virginians, with stores dotting the landscape with big promises of easy cash.
The short-term lenders have spread more than $2 million to Republicans and Democrats since 2010; in the same period, proposals to rein in the industry's pernicious effects have repeatedly been shot down by lawmakers apathetic to victims' plight.
In fact, in 2011, lawmakers - including Herring, then a state senator - approved legislation that actually worsened the situation, increasing the number of people who could be lured and ruined by lenders charging more than 200 percent in annual interest by permitting nonresidents of Virginia to take out loans.
But since his election in 2013, Herring has signaled a greater interest in rolling back Virginia’s status as the East Coast’s predatory-lending capital. Herring has partnered with the federal Consumer Financial Protection Bureau to raise awareness of the perils of payday, car-title and other short-term loan operations. His office has taken legal action against two Fredericksburg-area pawn shops suspected of making illegal payday loans, and this year referred 12 complaints against payday and car-title lenders to the State Corporation Commission.
State data show four out of five consumers who take out a short-term loan end up taking a second one to repay the first. That kind of business practice, in which 80 percent of customers are sucked into a recurring cycle of debt, is nothing short of predatory, and it's why Herring, the CFPB and so many other authorities have warned the public not to be tempted by these lenders' offers.
Consumers would do better to negotiate with their debtors, or try to borrow from friends or family, rather than risk losing thousands of dollars or more through Virginia's vast network of private, short-term lenders.
Unfortunately, Virginia's laws and regulatory structure create an environment primed for loan sharks to tempt unsuspecting, cash-strapped customers and then squeeze them for thousands of dollars. As Herring and others have noted, some customers end up paying far more in interest than they ever owed in principal yet still end up losing their car for missing a payment.
Hampton Roads' Sens. John Miller and Mamie Locke have championed measures to eliminate loan fees and cap interest rates at 36 percent. That would still provide a way for short-term lenders to exist without exploiting the poor.
Until more lawmakers are willing to stand up for the public, rather than cowing to predators out to preserve their own financial strength, consumers in Virginia - and visitors from other states - will have little support beyond the limited help Herring can give.