After several years of legislative efforts to foster a secure and viable marketplace for little 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, called balloon re re payments, and reduce rates. The legislation rationalizes exactly exactly exactly what was in fact a disparate regulatory framework, governed by a patchwork of rules that permitted payday and car title loans with unaffordable re payments and unnecessarily high expenses, and uncovered borrowers to monetary harm, including duplicated borrowing and high prices of car repossession. Previous research by The Pew Charitable Trusts showed that prior to the reforms, businesses routinely charged Virginians 3 x a lot more than clients in lower-cost states. 1
Virginia lawmakers balanced issues in regards to the option of small-dollar credit because of the urgency of stopping lending that is harmful, a challenge that officials various other states also provide struggled with. Virginia’s approach that is evidence-based on effective reforms formerly enacted in Colorado and Ohio that maintained extensive use of credit and measurably enhanced consumer outcomes by shutting loopholes, modernizing outdated statutes, and prohibiting balloon re re payments. Legislators created the work to mirror “three key principles of accountable lending: affordable re payments, reasonable rates, and time that is reasonable repay.” 2
Pew’s analysis of this act confirmed that, beneath the legislation, loan providers can profitably offer installment that is affordable with structural safeguards, saving the conventional debtor a huge selection of bucks in costs and interest with estimated total consumer cost cost savings surpassing $100 million https://speedyloan.net/uk/payday-loans-dur yearly. (See Table 1.) This brief examines exactly how Virginia reformed its laws and regulations to obtain a more contemporary, vibrant, and consumer-friendly small-loan market. Virginia’s success provides replicable classes for policymakers various other states suffering high-cost, unaffordable loans.
Virginia’s Small-Credit Pricing Yields Significant Customer Savings
Loan examples from pre and post reform
Loan | Before reform | After reform | Resulting savings |
---|---|---|---|
$300 over a few months | |||
$500 over 5 months | |||
$1,000 over year | |||
$2,000 over 18 months |
Problem | Solution |
---|---|