Consumer Finance

Virginia Sues Online Lender Over Consumer Loans

Loans

Virginia is suing one of the largest online lenders in the U.S. after reportedly charging Virginians millions in interest and fees. In a lawsuit, the state alleges that NetCredit lent more than $47 million in illegal high-interest loans, The Daily Press reported.

According to the lawsuit, NetCredit provided loans to over 47,000 Virginians going back to 2012. The suit also alleges that NetCredit ran afoul of the state’s usury cap of 12 percent. That maximum rate applies to most consumer loans, with some exceptions. One loan for $2,120, which was detailed in an exhibit, required a borrower to pay back $6,130 over 22 months — an interest rate of nearly 150 percent.

The Daily Press could not reach NetCredit for immediate comment. Its parent company, Enova International, reportedly spent more than $100 million in 2017 for marketing. In the newspaper’s story, Attorney General Mark Herring advocated for stronger laws to “protect Virginians from predatory loans, whether issued online or in person.”

“We’ve seen more and more Virginians turn to online lenders in a time of need only to find they’ve signed up for a debt trap that is going to cost them hundreds if not thousands of dollars in finance charges and fees,” Herring said.

In a 2017 study by the Cleveland Federal Reserve, economists took a rather dim view of the online lending space and the ways in which it recruits and handles its customers, believing additional regulation was needed to rein in some of the excesses their research uncovered.

The study examined data from TransUnion that identified about 90,000 customers who had taken out an online loan between 2007 and 2012. Using statistical techniques, those 90,000 customers were matched against a similar number of borrowers who were otherwise similar in income, credit history, initial borrowing power and other demographic details, but who did not use online loans. The data found that customers who had taken out online loans had grown their debts 35 percent more than those who had not over a period of two years.

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