Virginia’s biggest payday loan firm is leaving

Virginia’s largest payday lender is pulling out of the state ahead of stricter new regulations that will take effect next year.

Advance America surrendered its payday and title loan licenses last week, said Joe Face, commissioner of the Virginia Bureau of Financial Institutions.

So did Express Check Advance, which shares a South Carolina headquarters with Advance America.

Check Into Cash, the Cleveland, Tennessee-based payday lender, operates more than two dozen stores in Virginia and has not yet decided about its plans under the new Virginia rules that become effective next January.

A payday loan is a shortterm advance of up to $500, secured by a post-dated check for a higher amount. That surcharge and the interest lenders have been allowed to charge has amounted to the equivalent of an annual interest rate of as much as 818%, Bureau of Financial Institutions data show. The rate averaged 251% in 2018, the latest year for which data is available.

Title loans are secured by the borrower’s car or truck, which means that if the borrower misses a payment, the lender can take the vehicle. These lenders had been allowed to charge interest rates of up to 268%, bureau data show.

After January 1, interest for both types of loans will be capped at 36%. Payday lenders will be able to charge a monthly fee of up to $25, and title lenders a monthly fee of up to $15.

“Underserved consumers deserve opportunities for regulated, responsible credit, and rate caps like the new law’s 36% interest rate cap eliminate those options,” Jessica Rustin, Advance America’s chief legal officer said in an emailed statement.

“Under such restrictions, lenders simply cannot accommodate both the higher loss rates that come with serving the needs of subprime consumers and basic operating expenses, such as paying our employees and rent,” she added.

In 2018, payday lenders had to write off 5% of their loans as uncollectible. Capital One, the Virginia-based credit card giant, also wrote off 5% of its loans that year, according to its financial filings with federal banking regulators.

Rustin said Advance America’s Virginia customers offer what she described as overwhelming praise for the company’s loans, and worried that because many can’t qualify for credit cards or bank loans, they will turn to online lenders that charge even higher rates.

Advance America operated 64 payday loan offices and 65 title loan stores. Surrendering its license means more than 200 employees statewide will lose their jobs, Rustin said.

Express Check Advance had 11 payday and 12 title loan offices.

“It’s simply not credible that payday lenders can’t operate under the new law,” said Jay Speer, executive director of the Virginia Poverty Law Center. “Payday lenders, including Advance America, offer a $500, 6-month loan in Colorado for $125. The new law lets them charge $204 for the same loan.”

Speer said credit still will be available, adding that new, lower-cost lenders are planning to open as soon as the law takes effect.

“When other states have made law changes … lenders waited for the law to take effect before closing stores,” Speer said.

He said payday lenders have reported loan volume has dropped since the coronavirus hit.

“And payday lenders may be having a harder time collecting on loans because so many people have become unemployed or had their hours cut,” he said. “Payday and title lenders have relied on their ability to collect rather than borrowers’ ability to repay when making loans.”