The internet has upended the recording industry, the newspaper industry and the hotel industry. Now state regulators are looking at how to handle the latest industry to go online — cheap and easy high-interest loans.
Payday loans in Virginia are capped at 36% annual interest. Car-title loans are capped at 264% annual interest. But online, it’s the Wild West — an unregulated space where lenders can offer 5,000% interest.
Greg Porter with Online Lenders Alliance says setting a cap would be a bad idea. “Usually if you cap interest rates, you are limiting access to credit. So we are for letting the market operate. And usually that gets customers the best opportunity for market based pricing.”
But Jay Speer at the Virginia Poverty Law Center says these online lending companies are nothing more than loan sharks. “What the internet lenders are doing is only looking at whether they can collect on the loans, and they know they can collect because they get into people’s bank accounts.”
Earlier this year, lawmakers considered setting a cap for online loans and making them apply for a Virginia license. They ended up setting up a work group that’s now meeting over the summer to determine what, if any, potential new rules they can all agree on.
So far, industry leaders and consumer advocates aren’t agreeing on all that much.