A bill (HB 1248) to require online lenders to obtain a consumer finance company license to offer installment loans to Virginia consumers failed to advance in House of Delegates this session. Another bill (SB 625) that would have restricted the interest rate on such loans to no more than 36% likewise stalled in the House after passing the Senate with strong support.
HB 1248, introduced by Delegate Terry Kilgore (R-Gate City), the Chairman of the House Commerce and Labor Committee, represented the work of a study group comprised of industry and government representatives appointed by the Virginia Bureau of Financial Institutions. The bill reflected the consensus views of the study group and would have established a licensing and regulatory framework for online lenders, without offices in the state, to offer installment loans to consumers here. Current Virginia law – adopted long before the advent of the Internet – contemplates the issuance of a license for each physical location in Virginia from which loans are offered. As such, the Bureau will not issue a license to an online lender with no office in the Commonwealth.
Some legislators contend that any new licensing law that gives online lenders express lending authority should also include interest rate restrictions, like the 36% cap in SB 625 mentioned above. Other legislators believe that parties should have the freedom to contract as to interest rates and that competition in the marketplace will ultimately bring interest rates down for the benefit of consumers. This clash of views is why no legislation made it out of the General Assembly this session.
The failure of this legislation means that online lenders must continue to operate under existing laws that support their loan activities in the Commonwealth. Care should be taken, though, as the Attorney General of Virginia, Mark Herring, has aggressively pursued online lenders in recent months through the efforts of his Predatory Lending Unit. The Attorney General has been particularly aggressive in pursuing online lenders for misrepresenting that they have a Virginia license on their websites, failing to observe Virginia’s grace period requirement with respect to open-end loans, and engaging in unlawful debt collection activities.