While many watchful eyes focus on the economic impacts of actions of federal lawmakers inside the Beltway, pending legislation in a statehouse 100 miles south of DC could wreak havoc for the finances of residents of Virginia and perhaps the entire nation.
In our evolving financial technology landscape, Virginia Senate Bill No. 1252 poses a threat to credit access in Virginia. The bill aims to change sections of the Code of Virginia related to interest payments and recently passed both the state House of Delegates and the state Senate. Unless Gov. Glenn Youngkin vetoes this bill, soon Virginia residents might lose access to credit and useful purchasing and budgeting tools such as Buy Now Pay Later (BNPL). And progressive leftists championing the bill will likely attempt to spread its misery through similar state legislation in the rest of the country.
The bill would implement in Virginia one of the most restrictive interest-rate caps in the country, according to the National Consumer Law Center, the Boston-based progressive advocacy group that is one of the main champions of this legislation. The bill's broad scope is problematic for many reasons, including its disproportionate harm to smaller banks. Many rural and community banks, for instance, partner with fintech firms to originate loans. Big banks, by contrast, don't need to partner with fintechs, as they have the resources to build their own financial technology infrastructures. By restricting third-party partnerships, the bill would lock smaller banks out of offering loans and other financial products.
Currently, Virginia law states that "[e]xcept as otherwise permitted by law, no contract shall be made for the payment of interest on a loan at a rate that exceeds 12 percent per year." However, the law provides a long list of exceptions to this regulation, so that the 12 percent cap is largely inapplicable to many loan agreements. For example, a standard credit card annual percentage rate (APR) is typically double the 12% cap, which is why there is a noted exception for "revolving credit account" (credit cards).
SB 1252 doesn't cap credit card interest rates. However, it does take a swing at other types of financial technologies. The bill's broad language seemingly captures all third-party financial vendors which have previously been excluded from the 12 percent law. Concerningly, the imprecise language leaves a significant amount of discretion to a regulator rather than clearly identifying what types of financial activities and means of transaction the Virginia legislature would like limited.
Some banks have started to integrate BNPL into their existing menu of financial services, which calls into question how the usury law changes would be applicable to this type of loan. BNPL platforms have offered much-needed competition to traditional leasing agreements or layaway options, which is likely why the number of people using BNPL to shop has dramatically increased in recent years. BNPL is generally advertised as a "pay in four" installment plan with 0 percent interest if payments are made on time.
Yet because there is not explicit exemption in the bill for BNPL - as there is for other financial products and services - Virginia entrepreneurs have expressed concern that the bill could cripple this innovation. Each BNPL service has a slightly different customer agreement, and repayment schedule. Some charge late fees for failing to complete the agreed upon installment plan, and some charge interest. The likelihood that a regulator could decide these charges and fees are subject to the 12 percent cap could mean that bank and fintech firms will stop providing BNPL to consumers in Virginia.
BNPL vanishing from Virginia due to this bill would deprive consumers of a valuable tool to manage their debt. A 2023 report from the Consumer Financial Protection Bureau (CFPB) showed that BNPL users pay off their bills reliably, with only 10.5 percent of users ever being charged a late fee and only 3.8 percent of fees considered charge-offs. This responsible borrowing is built into the product by design, as BNPL services are often linked to debit cards, ensuring that consumers only spend money they have. This approach has resulted in a 99 percent repayment rate and losses below the credit card industry standard. It's also worth noting that banks are already highly regulated by the Federal Office of the Comptroller of the Currency (OCC), The Federal Reserve System, and the FDIC.
In a testimony to the Virginia House about this bill, The American Fintech Council (a trade group for fintech firms) testified that in, "2024, [American Fintech Council] members made more than 204,000 loans and lent more than $785,637,981 in total to Virginia borrowers. The average loan amount was $7,512." If this bill goes into effect and loan options in Virginia become more limited, consumers will either forgo certain purchases or substitute with other credit options, such as credit cards, payday lenders or pawn shops.
Limiting consumer credit choices with SB 1252 won't help Virginians be better with money or protect them from predatory lenders. By imposing new, stringent regulations on banks and fintech companies, the bill could disrupt beneficial partnerships and hinder the growth of financial technology tools and leave consumers out of options when they need them the most. Gov. Youngkin should veto SB 1252 to protect Virginia's financial ecosystem, encourage innovation, and ensure that consumers continue to have access to flexible and responsible credit options.