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Can State Regulators Crack Down on Car-Title Lenders?

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Critics say the car-title lending industry is predatory and traps consumers in a cycle of debt, and lawmakers asked the State Corporation Commission to take action two months ago. However, regulators are still trying to determine if they have the authority to take action without a new law directing them to do so.

When the General Assembly session began back in January, more than a dozen bills were in the works to crack down on the car-title lending industry. Media attention on the issue had exposed how the industry was using loopholes in the law to evade regulators. And Democratic Governor Terry McAuliffe was calling for reform.

But lawmakers did not respond the way the governor anticipated. He says, “They did not look kindly on me proposing something. And so I think the best course now is for the [State Corporation Commission] to do something about it, and I hope they will."

The State Corporation Commission, or SCC, is a group of regulators who oversee the car-title lending industry. After considering all those bills, lawmakers decided to send a letter to the commission asking that it take action. The letter, which was sent by Senate Commerce Chairman Frank Wagner and Senate Minority Leader Dick Saslaw asks that regulators revoke the authority of these businesses to offer more than one kind of loan.

“Well what we asked them to do is that you separate those who are doing the payday loans from those who are doing the title loans and not operating out of the two and switching them back and forth."

The letter actually went further than some of the proposed legislation would have gone, bringing the payday lending industry into the act as well as businesses that offer open-ended credit.

Under the action suggested by Wagner’s letter, all these businesses would be limited to one kind of loan, avoiding what many people consider a bait-and-switch.

There’s only one catch: Leaders at the State Corporation Commission aren’t sure that they have the authority to do that without the legislature taking action.

Republican Delegate Peter Farrell of Richmond says the law is unclear. “We don’t just ask for things. I mean we usually ask for legislative authority. That’s the way the precedent of the state of Virginia has been," says Farrell.

For now, state regulators have yet to determine how they’ll respond. They could set a new precedent and follow through cracking down on lenders that offer more than one kind of loan, or they could decide they need lawmakers to take action and wait for the next General Assembly session.

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