Virginia car title lenders doled out more loans in 2012 and sold thousands of cars repossessed to recoup outstanding loans, according to data collected by the State Corporation Commission.
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.
This is the second full year under state regulation.
According to the data recently published by Virginia regulators, car title lenders gave out more than 161,500 loans worth about $180 million in 2012, up from nearly 128,500 loans worth more than $125 million made the year before. The number of car title lending locations increased from 378 to 395 over the last year.
Loans were issued to about 132,690 individuals in 2012, up about 26 percent from the year earlier. And 20 percent of borrowers failed to make a monthly payment on a car title loan for at least 60 days.
"It's very distressing,'' said Jay Speer, executive director of the Virginia Poverty Law Center and a leading advocate against car title and payday lending. "It just means that more people are getting into financial trouble with these loans. None of these loans are any good for anybody except to get them into more debt and cause them more problems.''
Title lenders argue the number of loans shows there is a legitimate need for such short-term credit, saying those with bad credit and struggling small businesses have nowhere else to turn for small loans.
"The credit opportunities out there remain very, very tight,'' said Scott Johnson, who represents Community Loans of America, which operates about 60 car title lending locations in Virginia. "The numbers show that and the folks out there on the street do. When you're in the business of a painter or a landscaper and you've got a job to do (and) you've got no other way to get credit in order to buy the supplies to do your job, then you've got to turn to this.''
But when borrowers fall behind, their vehicles can be repossessed and are often sold at auction.
In 2012, car title lenders repossessed more than 13,000 vehicles, and about 80 percent of those were sold by lenders to recoup outstanding loans, the report shows.
Meanwhile, the SCC data show that despite laws enacted in 2008 to curb their repeated use, payday loans remain steady after a dramatic drop in their use. Both are short-term loans that charge borrowers triple-digit interest rates. Payday loans hold a paycheck as collateral for a loan, whereas a car title loan uses a vehicle.
The number of payday loans issued fell from more than 3.5 million in 2007 to about 461,000 loans worth more than $181 million last year, about 2 percent less loans than 2011, the SCC report said.
Payday loans were made to more than 140,000 individuals in 2012 and more than 82 percent of them received more than one loan during the year.
After legal challenges aimed at curbing repeat borrowing, the number of individuals who received 13 or more payday loans has decreased significantly. Before the reform was passed, more than 94,500 borrowers received 13 or more payday loans in 2007. Last year, no borrower took out as many payday loans.
While advocates have won reforms for both payday and car title lending, fights to cap the interest rate that both types of lenders can charge at 36 percent have been unsuccessful. The average annual interest rate for car title loans was 224 percent in 2012, while payday lenders charged an average 305 percent.
