Legislation affecting online lending will be among the bills the 2017 Virginia General Assembly considers when it convenes on January 11th for its regular session. Delegate Peter Farrell has prefiled two bills that would impose new licensing requirements and fee limitations on such loans. Similar bills are expected to be introduced by other members of the General Assembly. These measures have the support of the Virginia Bureau of Financial Institutions (the “Bureau”), the Virginia Attorney General’s office, and Legal Aid organizations, among others.
With respect to Delegate Farrell’s bills, HB 1443 would subject any lender making consumer loans over the Internet to Virginia residents to the requirements of Virginia’s Consumer Finance Company Act (“Consumer Finance Act”), whether or not such lender has a physical presence in Virginia. Currently, the law applies only to those making loans from a physical location in Virginia. If the bill is enacted, online lenders would have to obtain a license from the Bureau and would be subject to an interest rate cap of 36% on loans under $2,500, among other things.
HB 1442 would amend a separate statute dealing with open-end credit plans. This statute is somewhat of an anomaly in Virginia’s Interest and Usury Chapter in that it authorizes a lender to make open-end loans and charge rates and fees as specified in the loan agreement, subject only to a 25-day grace period, without having to obtain a license (i.e., there is an exemption in the Consumer Finance Act for such loans). HB 1442 would amend the statute to provide that any kind of origination fee or upfront charge as additional lender compensation could not exceed 5% of the initial amount that could be borrowed under the plan.
While efforts to amend these statutes in previous legislative sessions have been unsuccessful, there appears to be growing support for legislation addressing online lending. Under current law, an online lender without a presence in Virginia cannot obtain a consumer finance license even if it applies for one – the law contemplates that loans will be made from a physical location in Virginia – so there is an interest in fixing this along with ensuring an appropriate state regulatory framework for such online lending activities.