SCC Issues Short-Term Loan Regs; League’s Efforts Kept CUs Out of Original Legislation

Non-Depository Lenders Face New Regs Aug. 1

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The State Corporation Commission and the Bureau of Financial Institutions issued regulations this week on short-term loans made in the Commonwealth. Your League participated in a two-year study group in the run-up to the 2020 General Assembly and worked with lawmakers during the session to ensure credit unions were not adversely affected by the legislation that passed the General Assembly last year, legislation that led to these regulations.

"Your League worked closely with lawmakers on this issue, an issue with which the General Assembly has wrestled for more than a decade," noted League President/CEO Carrie Hunt. "We are pleased to see important new protections put in place for consumers, having heard the horror stories shared by our credit unions as they've helped members break free of predatory lenders. These regulations strengthen our communities by reining in non-depository online, payday, and title lenders, some of which have a long history of anti-consumer behavior."

Bills introduced in sessions prior to the two-year study infringed upon the open-end lending statutes for credit unions and banks. Your League was successful in helping craft sweeping reforms reining in predatory lenders, while exempting credit unions that provide consumer-friendly alternatives.

Importantly, the legislation addresses and bans the more egregious practices of payday loan, internet lending, and title loan companies while also offering protections for servicemembers and their families.

Credit unions have a long history of providing safe and responsible small-dollar, short-term credit to consumers through a variety of product offerings, including the Payday Alternative Loan (PAL) options developed by the National Credit Union Administration.

The SCC regulations affecting non-depository institutions include:

• A cap on the interest and fees that may be charged under a short-term loan at an annual rate of 36%, plus a maintenance fee; increases the maximum amount of such loans from $500 to $2,500; and sets the duration of such loans at a minimum of four months, subject to exceptions, and a maximum of 24 months.
• Short-term loan licensees are required to make a reasonable attempt to verify a borrower's income and may not collect fees and charges that exceed 50% of the original loan amount if such amount is equal to or less than $1,500 and 60% of the original loan amount if such amount is greater than $1,500.
• The regulations amend the requirements for motor vehicle title loans, including requiring licensed lenders to use a database to determine a prospective borrower's eligibility for a loan and prohibiting loans to a borrower who has an outstanding short-term loan.
• The measures include a 36% annual interest rate cap on open-end credit plans, while allowing a $50 annual participation fee. A violation of these provisions is made a prohibited practice under the Virginia Consumer Protection Act.
• The regulations amend provisions of the Consumer Finance Act to, among other things, allow licensed lenders to use the services of access partners and establish requirements that loans be between $300 and $35,000; be repayable in substantially equal installment payments; have a term of no fewer than six and no more than 120 months; charge not more than 36% annual interest and a loan processing fee; and require licensees to post a bond.
• Virginia law also prohibits lenders from making payday short-term loans to members of the military services, as well as their spouses and dependents.
• Credit service businesses are prohibited from advertising, offering, or performing other services in connection with an extension of credit that has an annual interest rate exceeding 36%, is for less than $5,000, has a term of less than one year, or is provided under an open-end credit plan.

The SCC order notes an effective date for the regulations of Aug. 1, 2021.

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