A new bill in Virginia that would expand the state's 12% interest rate cap in a manner that would heavily restrict fintech lending in the state has provoked an outcry from industry as it awaits signature from Governor Glenn Youngkin.
The new bill amends the anti-evasion subsection of the state's general rule to include any person "making, offering, assisting, or arranging a debtor to obtain a loan with a greater rate of interest, consideration, or charge than permitted under (the General Rule) through any method, including mail, telephone, Internet, or any electronic means, regardless of whether the person has a physical location in the state."
The bill is an effort to codify a barrier to anyone who partners with a bank that wants to engage in a
Many states, including Illinois and Washington, require fintechs to apply for a license in the state. These statutes usually have provisions that include an interest rate cap specifying that if a party attempts to avoid the licensing requirement, any loans made over the specified rate cap would be void.
But critics say the bill is too broad and will severely limit access to credit in the state.
"If this legislation passes, it creates enormous uncertainty in the market. It's unclear if banks or fintechs will want to test that uncertainty by lending into the state, and it's entirely reasonable if they did not [continue lending]," Catherine Brennan, a partner at Hudson Cook whose practice specializes in fintech, business funding and small-dollar and alternative lending, told American Banker.
"Further. It is entirely expected that if they did engage in lending in the state, some of these misguided consumer groups might sue them. It diminishes credit opportunities to Virginians, which is what consumer advocates want to do, because they do not believe that anyone should have debt," she said.
The language is broad enough to capture all third-party vendors that work with banks or originate loans, including marketing and direct-mail agencies, Brennan wrote in a
The American Fintech Council in a letter today urged Governor Youngkin to veto the bill.
"Responsible fintech companies and innovative banks have worked collaboratively with regulators to expand financial access in Virginia, but this bill would undo that progress and harm consumers without providing any clear consumer protection benefits," AFC CEO Phil Goldfeder said in a statement. "We strongly urge Governor Youngkin to veto this bill to protect Virginia families and preserve competition in the state's financial services market."
Governor Youngkin's office and Virginia Senator Lamont Bagby, who is the bill's chief sponsor, did not respond to requests for comment.
AFC estimates that about 235,000 or 3% of Virginians totaling $800 million in lending each year would be adversely affected by the bill, AFC Head of Policy and Regulatory Affairs Ian P. Moloney told American Banker.
"Unfortunately, the way it's written, there are a number of exemptions that make it very confusing to who actually would be subject to this bill," Moloney said. "While we recognize what the legislator, the bill sponsor, may have intended, we believe that it's pretty poorly written and would actually cause a lot more confusion within the industry, and ultimately limit the amount of access to responsible credit."
Earned wage access providers were specifically called out in the bill.
"Any contract entered into on or after July 1, 2025, pursuant to which a person receives a cash advance for an amount that is based, by estimate or otherwise, on the wages, compensation, or other income that an individual has earned or accrued but that has not been paid to the individual, and for which repayment to the cash advance provider will be made by some automatic means, like a scheduled payroll deduction or a preauthorized account debit, at or after the end of the pay cycle shall be considered a loan," according to the bill.
