Virginia Fairness in Lending Act of 2020 Reforms Small Credit
This fact sheet was updated Nov. 11, 2020 to clarify licensing requirements for online lenders and the applicability of the Virginia Consumer Protection Act to small-dollar loans.
After years of legislative efforts to foster a safe and viable market for small loans, Virginia lawmakers in 2020 passed bipartisan legislation—the Fairness in Lending Act—to bring down prices and prohibit loans with large final payments, known as balloon payments. The law rationalizes what had been a disparate regulatory structure, governed by a patchwork of laws that allowed payday and auto title loans with unaffordable payments and unnecessarily high costs and exposed borrowers to financial harm, including repeated borrowing and high rates of vehicle repossession. The new measure creates more uniform rules for lending to borrowers with thin or damaged credit histories, regardless of whether loans are made at a retail location or online or whether the lender is a payday, title, installment, or financial technology firm. This table summarizes key parts of the new law. For more information, see The Pew Charitable Trusts’ issue brief, “How Virginia’s 2020 Fairness in Lending Act Reforms Small-Dollar Loans.”1
Statute | Before reform | Key provisions in reform law | Comments |
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Open-end credit plans 6.2-3122 |
Unlimited interest charges; no fee limits |
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Until enactment, Virginia was one of only six states where payday lenders operated under open-end credit statutes without interest rate limits. The reforms allow mainstream open-end credit (loans without specific repayment durations, similar to credit cards) but direct higher-cost lenders to other statutes shown below. |
Title and payday lending overlap |
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Online lending Limited enforcement powers Potential “choice of law” loopholes |
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Consumer finance companies 6.2-15003 |
36% interest rate cap for loans of up to $2,500; no cap for larger loans |
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Virginia was previously one of only 10 states that did not cap rates for mainstream, nonbank installment loans above $2,500. Revised law enables regulated in-store and online installment lending at all loan sizes. |
Lenders must have a location in Virginia to obtain a license No internet-only providers |
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Limited enforcement powers against internet lenders |
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Short-term loans formerly “payday lenders” 6.2-18004 |
“Payday loans” with 36% interest cap and a fee of 20% of the loan amount per two pay periods, plus a $5 database fee |
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Before reform, Virginia had extremely short-term payday loans with unaffordable balloon payments and prices 3 times higher than the same lenders charge in some other states. Outdated policies prevented access to lower-cost, regulated installment loans. Reforms modernize rules to enable unsecured, short-term small installment loans with affordable payments, reasonable time to repay, and lower prices that are still viable for responsible lenders. Virginia’s law is similar to successful reforms in other states where small-dollar credit remains widely available. |
Loan due in two pay periods |
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Payment due in a single lump-sum unless borrower qualifies for and requests a payment plan |
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Repeated use can result in borrowers paying more in fees and interest than they originally received in credit |
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Maximum loan size of $500 |
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One payday loan at a time from any lender, enforced by a database |
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No electronic access to checking accounts |
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Online lending |
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Limited enforcement powers |
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Some reporting |
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Motor vehicle title loans 6.2-22005 |
Small loans secured by a vehicle the borrower owns, with 180% to 264% interest depending on loan amount |
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Before reform, Virginia allowed short-term loans secured against a vehicle the borrower owns (title loans). These loans often had unaffordable payments and were unnecessarily costly: Total repayment was usually more than double the amount borrowed. With few protections in place, the state had some of the highest vehicle repossession rates in the country. Lawmakers chose to keep the title loan statute with almost identical reforms as the short-term loan statute, with minor variances. Licensed lenders may offer secured loans, unsecured loans, or both. |
No cap on fees to repossess or sell vehicles (ambiguously referred to in the statute as “reasonable costs”) Extra fees allowed for registering liens on cars used as security |
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Credit services businesses 59.1-335.1.6 |
Brokerage fees allowed even on small loans: This type of law creates loopholes that lenders can use to evade consumer finance, payday loan, and other statutory reforms. |
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A small number of states have statutes that allow companies to charge a fee for brokering debt consolidation or other loans. These laws are known as credit services businesses, credit services organizations, or credit access businesses acts, and payday and title lenders have used them to evade rate caps and other rules. Virginia’s reforms preserve the credit brokering statute for its original intended purposes, including debt consolidation loans, while prohibiting its use as a loophole for avoiding rules specifically meant to govern small, short-term, or high-rate loans. |
General enforcement (all statutes) |
Unlicensed online lending; frequent attempted evasion of licensing requirements |
Each reformed statute:
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Corrects inconsistencies and improves enforcement. Making illegal loans void as a matter of state law helps prevent unlicensed or out-of-state lenders from collecting from in-state borrowers or their banks and improves enforcement powers of state officials. |
Endnotes
- The Pew Charitable Trusts, “How Virginia’s 2020 Fairness in Lending Act Reforms Small-Dollar Loans” (2020), https://pewtrusts.org/en/research-and-analysis/issue-briefs/2020/10/how-virginias-2020-fairness-in-lending-act-reforms-small-dollar-loans
- Virginia Code 6.2-312, https://law.lis.virginia.gov/vacode/title6.2/chapter3/section6.2-312.
- Virginia Code 6.2-1500 Et Seq., https://law.lis.virginia.gov/vacode/title6.2/chapter15/.
- Virginia Code 6.2-1800 Et Seq., https://law.lis.virginia.gov/vacode/6.2-1800/.
- Virginia Code 6.2-2200 Et Seq., https://law.lis.virginia.gov/vacode/6.2-2200/.
- Virginia Code 59.1-335.1 Et Seq., https://law.lis.virginia.gov/vacode/title59.1/chapter25.1/section59.1-335.1/.
- This provision does not apply to consumer finance companies. Virginia Code 6.2-1500 Et Seq.