A. Barton Hinkle on the Unintended Consequences of Cracking Down on Payday Lenders

Four years ago, Virginia lawmakers cracked down on payday lending. They limited borrowers to one payday loan at a time, and doubled the length of time they had to pay the money back. It worked. Payday loans plunged more than 80 percent. A few lenders left the state completely. But it also didn't work. The reforms created a vacuum being filled by a new form of short-term lending: car-title loans.

In a payday loan, the borrower writes a post-dated check to cover the loan amount, plus fees. In a car-title loan, the borrower puts up a vehicle as collateral. Since 2010 the number of car-title lending companies in Virginia has more than doubled. Last year, they made more than 128,000 loans, worth an aggregate $125 million. They also, notes A. Barton Hinkle, repossessed nearly 8,400 vehicles.