Virginia considering regulating car title loans

Virginia is considering putting the brakes on the repo man, but there's disagreement on how to do it.

A General Assembly panel yesterday opened hearings on a possible clampdown on car-title loans, under which borrowers -- often with poor credit histories -- use their cars as collateral and lose them if they fail to repay.

The industry, which typically charges 300 percent to 350 percent in annual interest, operates in Virginia with few restrictions.

Through a vast corps of lobbyists and $1.1 million in contributions to legislators since 2002, lenders are pressing for restrictions that won't threaten profits.

Dewey B. Morris of Richmond, a lawyer who specializes in consumer finance and represents four car-title lenders, said firms don't want borrowers' vehicles.

Often they are of little value, because owners won't maintain them if they anticipate ducking a loan, he said.

One of Morris' clients, Community Loans of America, repossesses cars and trucks on only 5 percent of failed loans. Morris said two in 10 loans default.

Jay Speer, a lawyer for the Virginia Poverty Law Center, said car-title lenders should operate under a law restricting interest on consumer loans to 36 percent.

Growing concern about the impact on the work force of high-cost loans, such as car-title and payday loans, has even prompted Virginia government to offer alternatives to its employees.

The state expects to announce next month an emergency-loan program under which workers could borrow small sums at low rates.

Seventeen states regulate cartitle loans; 24 states and the District of Columbia ban them or limit interest rates to those allowed on consumer loans.

Virginia car-title lenders believe a Tennessee statute could be model for a law here. In place since 2005, the Tennessee law limits loans to $2,500 but requires an upfront fee based on 20 percent of the loan and allows modest reductions in principal after the loan is renewed a third time.

The downturn and restrictions this year have cut deeply into payday lenders' profits, forcing them to offer pricier alternatives. Contact Jeff

jschapiro@timesdispatch.com