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Financial Services Law Insights and Observations

Virginia caps interest and fees charged under short-term loans

State Issues State Legislation Consumer Lending Consumer Finance Interest Rate Auto Finance

State Issues

On April 22, the Virginia legislature enacted HB 789, which amends certain provisions of the Virginia Consumer Protection Act (VCPA) related to consumer lending. Specifically, the provisions increase the maximum short-term loan from $500 to $2,500, and sets the duration of these loans to a minimum of four months and a maximum of 24 months, subject to exceptions. Interest and fees that may be charged on a short-term loan are capped at an annual rate of 36 percent, plus a maintenance fee. In addition, licensed lenders are required to make a reasonable attempt to verify a borrower’s eligibility and may not collect fees and charges that exceed 50 percent of the original loan amount if such amount is $1,500 or less, or 60 percent of the original loan amount if the original amount is greater than $1,500. Additional amendments include provisions that (i) update the requirements for motor vehicle title loans, including prohibiting loans to borrowers with outstanding title loans, and prohibiting licensees from collecting or receiving credit insurance premiums and charges for ancillary products, among other things; (ii) make a violation of the bill’s provisions a prohibited practice subject to enforcement under the VCPA; (iii) allow licensed lenders to use the services of access partners, subject to certain conditions; (iv) provide that installment loans must be between $300 and $35,000 to be paid in substantially equal installment payments, with terms of no fewer than six and no more than 120 months; and (iv) outline short-term loan advertising requirements. Persons required to be licensed under these provisions must apply for a license on or before October 1, 2020. Licenses will take effect January 1, 2021 for those issued by the State Corporation Commission prior to this date.