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Just How Virginia’s Fairness in Lending Act Reforms Small-Dollar Loans

After several years of legislative efforts to foster a secure and viable marketplace for little loans, Virginia lawmakers in 2020 passed bipartisan legislation—the Fairness in Lending Act (S.B. 421/H.B. 789)—to prohibit loans with big last re payments, referred to as balloon re payments, and reduce costs. The legislation rationalizes just what have been a disparate structure that is regulatory governed by a patchwork of laws and regulations that allowed payday and automobile name loans with unaffordable re re re payments and needlessly high expenses, and uncovered borrowers to economic damage, including duplicated borrowing and high prices of automobile repossession. Past research because of The Pew Charitable Trusts revealed that ahead of the reforms, businesses routinely charged Virginians 3 x a lot more than clients in lower-cost states. 1

Virginia lawmakers balanced issues in regards to the accessibility to small-dollar credit because of the urgency of stopping lending that is harmful, a challenge that officials in other states also provide struggled with. Virginia’s evidence-based approach develops on effective reforms formerly enacted in Colorado and Ohio that maintained extensive use of credit and measurably enhanced customer outcomes by shutting loopholes, modernizing outdated statutes, and prohibiting balloon payments. Legislators designed the work to mirror “three key principles of accountable financing: affordable re payments, reasonable costs, and reasonable time and energy to repay.” 2

Pew’s analysis of this work confirmed that, underneath the legislation, loan providers can profitably provide affordable installment loans with structural safeguards, saving the normal debtor a huge selection of bucks in charges and interest with estimated total consumer cost cost savings surpassing $100 million yearly. (See Table 1.) This brief examines exactly exactly how Virginia reformed its rules to produce a far more contemporary, vibrant, and consumer-friendly market that is small-loan. Read the rest of this entry »