Virginia: Payday Lenders Skirted Regulation by Offering Open-Ended Credit Lines


After Virginia Passed A 2009 Law Cracking Down On Payday Loans Including APR Caps And Loan Limits, Payday Lenders Began Offering Open-End Credit Lines With No Rate Caps.

“There wasn’t much the law center could do to help. “The open-end credit loophole is a way that the lenders have to get around the statutes,” said Ward Scull, the Hampton moving company executive whose work with Virginians Against Payday Loans led to the 2009 crackdown. Unlike other consumer loans, open-end credit agreements are subject to no interest rate or fee cap. Payday loans – which many of the open-end credit lenders had made before the 2009 regulatory crackdown – can’t charge more than 36 percent plus a fee amounting to 20 percent of the amount borrowed. The crackdown also said lenders, who used to charge triple-digit interest rates on payday loans, can’t make more than one loan at a time to a borrower. The aim was to prevent the piling up of debt, like what results from the monthly fees and high interest rates of the open-end agreements. “When I was running for office and knocking on doors, and when I ran for re-election, I kept hearing about these,” Yancey said. “My constituents are being hurt.” Except for a requirement that borrowers have a 25-day grace period to repay the balance with no interest charges, there is no law regulating repayment of open-end credit loans.” [Daily Press, 1/26/14]

Payday Lenders Stated Offering Different Types Of Loans To Get Around Virginia Payday Law Including The Use Of “Open-Ended Credit Products” That Are “Similar To A Credit Card” And Unregulated. “Some of the nation’s most sweeping reforms on payday lenders will take effect in Virginia Thursday, but some short-term, high-interest lenders are getting around the new law by offering different types of loans. Legislators ended three years of debate over the industry last winter when they passed a law that limited borrowers to one payday loan at a time and extended the length of time they have to repay it, effectively limiting how many loans they can get each year. Lawmakers put off the effective date until Jan. 1 to allow time to set up a database to track the loans. In the meantime, the State Corporation Commission gave 11 payday lending companies permission to offer open-end credit products. Another seven applications are pending. In Virginia, lenders offering open-end credit — similar to a credit card — are unregulated. They can set whatever interest and terms they wish as long as they don’t charge anything for the first 25 days.” [Fox News, 12/31/08]

Advance America And QC Holdings Began Offering An Open Line Of Credit With 400% APR After Virginia’s Payday Loan Law Went Into Effect. “Advance America recently began offering an open line of credit up to $750, for which customers are billed once each month at about 400 percent annual interest. QC Financial Services, based in Overland Park, Kan., also will offer an open-end credit product in Virginia, company spokesman Tom Linafelt said.” [Fox News, 12/31/08]

Payday Lenders In Virginia Also Switched To Offering Title Loans That Didn’t Fall Under The Payday Lending Law Regulations. “Before the law took effect in January, the majority of the state’s payday lenders began offering other high-interest loans, like lines of credit or car title loans, in which borrowers hand over the title to their vehicle to secure a loan for up to half the car’s value. If they fall behind, the lender can take the car. Those types of loans fall under Virginia’s open-end credit law, which allows lenders to charge whatever they want as long as they don’t charge anything for the first 25 days. Open-end loans allow for a revolving line of credit similar to a credit card. Upset that payday lenders sidestepped the new law, this winter legislators passed a law banning those with payday-lending licenses from offering unsecured open-end loans. They can offer car-title loans.” [AP, 6/22/09]

Act Now