On January 31, 2020, by a vote of 65 to 33, the Virginia House of Delegates passed a bill that would establish a 36% rate cap on certain consumer loans.  Since Democrats also hold a majority in the Virginia Senate, the Senate is expected to also pass the bill.

The bill amends Virginia’s general usury law and Consumer Finance Act and includes the following key provisions:

  • References to “payday loans” are changed to refer to “short-term loans” with the maximum amount of such loans increased from $500 to $2,500.  Such loans can have a minimum term of four months (subject to exceptions) and a maximum term of 24 months and interest and fees cannot exceed a 36 percent simple annual rate plus a monthly maintenance fee.  The monthly maintenance fee cannot exceed the lesser of 8% of the original loan amount or $25 (and cannot be added to the loan balance on which interest is charged).  Licensed lenders must make a reasonable attempt to verify a borrower’s income and may not collect fees and charges that exceed 50 percent of the original loan amount if such amount is equal to or less than $1,500 and 60 percent of the original loan amount if such amount is greater than $1,500.
  • Motor vehicle title loans can have a maximum amount of $2,500, a minimum term of six months (subject to exceptions) and a maximum term of 24 months, and interest and fees that do not exceed a 36 percent simple annual rate plus a monthly maintenance fee.  The monthly maintenance fee cannot exceed the lesser of 8% of the original loan amount or $15 (and cannot be added to the loan balance on which interest is charged).  Licensed lenders must make a reasonable attempt to verify a borrower’s income and  may not collect fees and charges that exceed 50 percent of the original loan amount if such amount is $1,500 or less and 60 percent of the original loan amount if such amount is greater than $1,500, and are prohibited from making a motor vehicle title loan to a borrower with an outstanding short-term loan.

We calculated the following APRs for short-term and motor vehicle title loans of various amounts financed and terms on which a 36% annual rate and the maximum allowed maintenance fee was charged:

  • Short-term loans:
    • $300 amount financed and 4-month term: 177.91% APR
    • $500 amount financed and 5-month term: 128.10% APR
    • $1,000 amount financed and 10-month term: 83.73% APR
  • Motor vehicle title loans:
    • $300 amount financed and 6-month term: 128.86% APR
    • $500 amount financed and 8-month term: 93.17% APR
    • $1,000 amount financed and 10-month term: 65.17% APR