Exactly Just How Virginia’s 2020 Fairness in Lending Act Reforms Small-Dollar Loans

Exactly Just How Virginia’s 2020 Fairness in Lending Act Reforms Small-Dollar Loans

Legislation closes regulatory loopholes, caps interest levels, and offers classes for any other states

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Overview

After many years of legislative efforts to foster a secure and market that is viable tiny loans, Virginia lawmakers in 2020 passed bipartisan legislation—the Fairness in Lending Act (S.B. 421/H.B. 789)—to prohibit loans with big last re re payments, referred to as balloon re re payments, and reduce rates. The legislation rationalizes just just exactly what was indeed a disparate regulatory framework, governed by way of a patchwork of rules that allowed payday and auto name loans with unaffordable re re payments and unnecessarily high expenses, and exposed borrowers to monetary damage, including repeated borrowing and high prices of automobile repossession. Past research by The Pew Charitable Trusts revealed that prior to the reforms, businesses routinely charged Virginians 3 x a lot more than clients in lower-cost states. 1

Virginia this content lawmakers balanced issues in regards to the option of small-dollar credit utilizing the urgency of stopping harmful financing techniques, a challenge that officials in other states likewise have struggled with. Virginia’s evidence-based approach develops on effective reforms formerly enacted in Colorado and Ohio that maintained extensive use of credit and measurably enhanced customer outcomes by shutting loopholes, modernizing outdated statutes, and prohibiting balloon re payments. Legislators created the work to reflect “three key principles of accountable financing: affordable re re payments, reasonable rates, and time that is reasonable repay.” 2

Pew’s analysis of this work confirmed that, underneath the legislation, loan providers can profitably provide installment that is affordable with structural safeguards, saving the normal debtor a huge selection of bucks in costs and interest with estimated total consumer savings surpassing $100 million yearly. (See Dining Table 1.) This brief examines exactly how Virginia reformed its laws and regulations to obtain an even newer, vibrant, and consumer-friendly small-loan market. Continue reading “Exactly Just How Virginia’s 2020 Fairness in Lending Act Reforms Small-Dollar Loans”