Virginia Senate Committee Approves 36% Cap on Consumer Installment Loans

On January 29th, the Virginia Senate Commerce and Labor Committee approved legislation (SB 625) that would restrict the annual interest rate on all installment loans offered by consumer finance companies to no more than 36%. Under Virginia’s current consumer finance company statute, only loans of $2,500 or less are subject to a 36% annual interest rate restriction. For loans over $2,500, there is no restriction and a consumer finance company may charge interest at a rate established by contract. Thus, the bill would take the existing 36% cap – applicable only to loans of $2,500 or less – and extend it to all installment loans that consumer finance companies would be authorized to make, which the bill identifies as loans between $500 and $35,000.

The patron of the bill, Senator Scott Surovell (D-Fairfax), along with bill supporters, testified in committee that the interest rate cap is necessary to curb abuses by online lenders. The bill includes other provisions addressing how interest must be calculated, permissible fees, and restrictions on a consumer finance company’s ability to conduct certain other loan activities.  Somewhat similar legislation was introduced last year in California (AB 784/AB 11109) and Maryland (SB 527/HB 1270).

The Virginia legislation is now pending in the full Senate. Assuming passage in the Senate, the bill will come before the House Commerce and Labor Committee after the General Assembly’s cross-over date (February 14th), the date that bills introduced and passed in one chamber – either the Senate or House – go to the other chamber for consideration. Another consumer finance bill (HB 1248) introduced by the Chairman of the House Commerce and Labor Committee, Delegate Terry Kilgore (R-Gate City), would make a number of changes to the consumer finance company statutes in an effort to modernize such statutes, but without any change to the interest rate provisions. Importantly, Delegate Kilgore’s bill would facilitate the ability of online lenders to obtain a consumer finance company license and offer installment loans under the authority of Virginia’s consumer finance company statutes.

Delegate Kilgore’s bill was drafted by the Virginia Bureau of Financial Institutions pursuant to the work of a legislative study group, comprised of industry and government representatives, that met last year to consider potential legislation to address online lending and related matters. This bill should be heard in committee within the next week or so.

Jay Spruill

About: Jay Spruill

Jay leads the Marketplace Funding Industry Team and is a member of the Banking Industry Team. Jay has extensive experience advising financial institutions in the development of products and services, including online loan products, and on regulatory matters affecting financial institution business models. View all posts by Jay Spruill
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