April 28, 2020
On April 22, 2020, the Virginia Senate and House of Delegates enacted two identical bills, Senate Bill 421 and House Bill 789, that make sweeping changes to several consumer lending statutes. Following is a description of the major changes resulting from the new legislation:
Consumer Finance Act (Va. Code §§ 6.2-1501 et seq.)
(1) Establishes the following loan requirements:
(a) Loans must be between $300 and $35,000;
(b) Loans must be repayable in substantially equal installment payments;
(c) Loans may not have a term of less than 6 months or more than 120 months; and
(d) Licensees may not charge more than 36% annual interest and a loan processing fee.
(2) Permits lenders making loans over the Internet to obtain a license whether or not the lender has a physical presence in Virginia.
(3) Requires licensees to post a bond.
(4) Allows licensees to use the services of "access partners."
Open-End Credit Plans (Va. Code § 6.2-312)
(1) Sets a 36% annual interest rate cap on open-end credit plans and allows a $50 annual participation fee.
(2) Provides that a violation of Va. Code § 6.2-312 is a prohibited practice under the Virginia Consumer Protection Act.
Short-Term (formerly "Payday") Loans (Va. Code §§ 6.2-1800 et seq.)
(1) Replaces references to payday loans with "short-term loans."
(2) Provides for a flat annual interest rate cap of 36%.
(3) Permits lenders to impose a monthly maintenance fee, as well as late fees and returned payment fees.
(4) Increases the maximum amount of such loans from $500 to $2,500.
(5) Sets the duration of such loans at a minimum of 4 months, subject to exceptions, and a maximum of 24 months.
(6) Requires short-term loan licensees to make a reasonable attempt to verify a borrower's income and prohibits licensees from collecting 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.
Motor Vehicle Title Loans (Va. Code §§ 6.2-2200 et seq.)
(1) Provides for a flat annual interest rate cap of 36%.
(2) Permits licensees to impose a monthly maintenance fee, as well as late fees and returned payment fees.
(3) Imposes a $2,500 maximum amount cap on motor vehicle title loans.
(4) Sets the duration of motor vehicle title loans at a minimum of 6 months, subject to exceptions, and a maximum of 24 months.
(5) Requires licensees to use a database to determine a prospective borrower's loan eligibility.
(6) Prohibits motor vehicle title loans to borrowers who have an outstanding short-term loan.
Credit Services Businesses (Va. Code §§ 59.1-335.1 et seq.)
(1) Prohibits credit service businesses 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.
Senate Bill 421 and House Bill 789 are effective January 1, 2021. Any person who must obtain a license under the changes made by the legislation must apply for a license by October 1, 2020.