“Virginia’s pending bill would restrict fintech lending statewide."
Why this is important: Recent legislative developments in Virginia are aimed at closing gaps that allow new financial products to avoid traditional lending regulations, as financial services offerings continue to evolve.
A bill passed by both houses in Virginia’s General Assembly (Senate Bill 1252) aims to impose a 12 percent interest rate cap to prevent fintechs from evading usury limits, which cap the amount of interest lenders can charge on loans. The Virginia legislation seeks to deal with the significant increase of lending that involves banks partnering with fintechs to offer loans via the internet which may involve non-Virginia based banks and/or fintechs.
Virginia’s current usury limits impose a 12 percent per year interest rate maximum for loans, except as otherwise provided by law, including authorization of banks to impose interest and fees as agreed by the parties for installment loans and exempting loans for business purpose transactions of more than $5,000.
SB 1252
The bill expands the Commonwealth’s interest rate caps to cover two relatively new areas: adding anti-evasion measures to existing usury laws and covering comparatively newer financial products like earned wage access.
The “anti-evasion” provisions target banking-as-a-service and fintech-bank partnership programs where banks technically make the loans while the fintechs market and operationalize the loans. In most cases, the products are white-labeled under the fintech’s name. These anti-evasion measures seek to prevent parties from disguising transactions as asset purchases but functioning as loans.
The bill also targets earned wage access services by providing that any person who “receives a cash advance” that is based on income the person has earned but has not been paid is considered a loan if “repayment to the cash advance provider will be made by some automatic means” such as a preauthorized ACH debit.
Recently, the American Fintech Council (AFC) sent correspondence to Governor Youngkin urging him to veto Senate Bill 1252 to preserve competition in the state’s financial services market and warning of the legislation’s restrictive nature. In 2024, AFC members provided about $800 million in credit to some 235,000 Virginia residents, the letter said. The bill also raises concerns for AFC regarding the burden on Virginia’s Bureau of Financial Institutions to implement and enforce its requirements.
The AFC and other opponents stress that the uncertainty created by the bill and potential for an aggressive regulator to broadly interpret the anti-evasion provision may chill investment and innovation in Virginia while harming consumers by limiting their access to credit. Governor Glenn Youngkin is reviewing the legislation, but it remains unclear whether he will sign or veto the bill. --- Bryce J. Hunter
