Calvin Smith, who recently moved to Chesterfield to care for his parents, laments his credit report has had a black mark on it for years. He was down on his luck and used a title loan to help catch up on his bills.
The explaination Experian gives him for his midrange credit score is the title loan he received about 10 years ago. Smith had no idea he would suffer for only trying to satisfy his creditors in good faith.
Showing a section of his credit report to the Village News, the report listed what items had brought down his score, one item stated, “You have two account(s) from personal finance companies. This lowers your score. Note that accounts from personal finance companies (which specialize in lending to people with credit problems) may be considered negative.”
“I had no idea this would stay on my credit for so long,” said Smith. “I think maybe the people I owed money might have taken payments. That would be a lot better for me now.”
The Chesterfield County Planning Commission is considering a number of businesses who offer someone short on cash a way to get it quick and easy. There are vehicle title lenders, such as Smith dealt with, payday lenders, pawnbrokers, check cashing establishments and precious metal dealers.
The commission has been charged with developing “a draft ordinance and policies pertaining to regulation of [what the planning staff calls] alternative financial institutions” (AFIs).
The proposed draft ordinance is currently applied to pawn brokers and check cashing establishments. Staff suggest the rules extend to vehicle title lenders, payday lenders and precious metal dealers. Currently the operations must be located in Commercial (C-5) zoned areas and obtain a conditional use permit. Most of the AFI establishments open currently are located on Jefferson Davis Highway.
According to cable news station CNN, vehicle title loans usually carry an interest rate of about 25 percent for 30 days. If you can’t pay it off in a month the loan rate continues until you pay it off. That works out to about 300 percent annually. A $500 loan, in thirty days, turns into a $625 debt. Over a year’s time that would cost the borrower $2,000.
Payday lenders can get as much as 400 percent for a loan. According to the Center for Responsible Lending, “Since 2005, no state has authorized this high-cost loan product.
Additionally, the District of Columbia and six states – Arkansas, Arizona, New Hampshire, Ohio, Oregon and Montana – have all enacted meaningful reforms.” In addition the article states, “Loan terms that require full payment in as little time as two weeks plus an average 400 percent annual interest, catch borrowers in a turnstile of debt. Before long, payday’s cycle of debt denies dollars for household budget items like child care, groceries or utilities.”
According to the Federal Trade Commission, some payday lenders were fined for tossing sensitive consumer data into the trash dumpsters outside their establishments, where the information was readily available to anyone. The lenders violated the disposal rules and were fined $101,500.
Check-cashing businesses can charge as much as 10 percent per check. If a worker needs to cash a $400 pay check it will cost him $40. Many operations call themselves check-cashing stores, offering a number of other high-interest products.
Pawn shops are much like payday lenders or vehicle title lenders, payback resulting in a retrieval rate equaling as much as 100 percent of the original pawned value.
Speakers during the public hearing on September 18 overwhelmingly indicated they were not in favor of the institutions at all.
According to the minutes of the meeting, Ms. Kathy Bruce presented a petition of opposition with 103 signatures. She stated AFIs are viewed as predatory lenders; that other alternatives exist for loans; and the businesses will increase crime rates.
Mr. Thomas Cleary stated AFIs offers high cost loans that prey on the misfortunate; and thinks the businesses should not locate in the County.
Several speakers favor the AFIs. Mr. Carl Callin, Fast Auto Loans, expressed support and stated AFIs also provide services for Chesterfield residents and business owners; and that the businesses provide a service and options for customers.
The planning commission has been working on an ordinance and policy on these types of businesses since July. The public-comment period has ended but the commission will vote or defer the item during its meeting on November 15.