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VOL. 121 | NO. 220 | Friday, November 10, 2006

Anti-Predatory Lending Advocates Target Auto Title Loans

By Andy Meek

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SIGN WAVES: Corky Neale, a researcher for the RISE Foundation, explains some of the foundation's findings on title loans. -- Photo By Zachary Zoeller

Tennessee's next legislative session begins anew in a matter of weeks, which is why the push to get lawmakers involved in reforming the state's auto title lending industry is starting to accelerate.

Surging with momentum from a similar fight last year - when consumer advocates, lobbyists and other industry leaders all helped negotiate a strict state predatory lending law - activists now are gearing up for round two of the fight against fringe lenders in Tennessee.

On Tuesday, the MemphisDEBT Collaborative is hosting an educational seminar about auto title lending in the state, with the intent of diagnosing the scope of the problem and forming a game plan for confronting it. The meeting, scheduled for the training room in the Junior Achievement of Memphis facility at 307 Madison Ave., also will feature a presentation by Luther Mercer, a local attorney with extensive knowledge about ethics issues.

An 'onerous' industry

Activists have pointed to several reasons why their focus is on auto title lending specifically, as opposed to the payday loan shops that offer quick cash to low-income customers at triple- and quadruple-digit interest rates. No. 1, they say, there's not as much of a deep-pocketed, well-heeled lobby for the auto title loan industry as there is for payday loan businesses.

No. 2, while neither lending option is ideal or especially consumer-friendly, debtors tend to get fleeced by auto title loans even more easily than they do by payday loans.

Auto title storefronts pop up in Memphis with presumably no favoritism toward rich or poor neighborhoods; they beckon cash-strapped customers from scattered addresses Downtown as well as in the higher-income wealth corridor around Wolfchase Galleria.

And anyone unlucky enough to get caught up in the debt cycle that often accompanies auto title loans would no doubt be familiar with the more unpleasant provisions in the state's code, such as the fees that lenders are allowed to charge.

"There's this little provision in the auto title lending legislation that allows lenders to charge fees up to 20 percent per month," said Corky Neale, a research and innovation specialist for the RISE (Responsibility, Initiative, Solutions, Empowerment) Foundation. "So if you roll (the loan) over five times, you've got 100 percent of the principal paid out in fees.

"That's one of the really onerous kinds of provisions in the auto title lending component of things."

Comparison shopping

MemphisDEBT Collaborative forum
Where: Junior Achievement training room, 307 Madison Ave.
When: Tuesday, 3 p.m.
For more information, call Corky Neale at 507-8884.

Activists are coming after similar tidbits of legislative code still on Tennessee's books with full force. On Tuesday, attendees of the educational forum, which will last from 3 p.m. to 4:30 p.m., will get some background on Tennessee's auto title lending legislation and compare it to that in surrounding states.

They'll also get an idea how much horsepower there might be behind a push to seek legislative changes in Nashville.

"What we're going to do is we've retained an attorney to look into auto title lending legislation in Tennessee, and then we'll compare that to surrounding states, primarily in the South," Neale said. "So we'll have a sense of what other states have done, where they are and then maybe some suggestions for how we make the auto title lending legislation in Tennessee a little bit stronger."

Talking strategy

The MemphisDEBT Collaborative, a group whose members represent a cross-section of the government and business communities, has been meeting regularly to chart its next course in tackling fringe lending abuses. The collaborative was formed under the auspices of Neale's group, the RISE Foundation.

The group has been depending heavily on local activists like attorney Webb Brewer - general counsel and director of advocacy for Memphis Area Legal Services (MALS) - to pursue its mission.

Brewer has called Tennessee's auto title pledge law one of the most lax in the country.

"The law permits interest, effectively, of up to 264 percent annually, which is 22 percent per month," Brewer said. "That doesn't sound so bad for this type of loan, but it also allows for 20 percent administrative costs, and when that rolls over, the person gets stuck in this trap.

"They end up having to pay the interest and administrative charge each month to keep from losing their vehicle, and it's really that 20 percent administrative fee which is totally unrelated, in my view, to any legitimate cause."

In the crosshairs

Auto title lending isn't the only issue the MemphisDEBT group and others have in their sights. Predatory lending, the focus of the new state law that goes into effect in January, still is a hot topic.

With that in mind, researchers at the RISE Foundation joined attorneys, mortgage lenders and other stakeholders in a meeting a little more than a week ago at the Pink Palace to learn more about the predatory lending problem in Tennessee - how bad the problem still is, who it's still affecting and what hard numbers are available to illustrate it.

"A couple of weeks ago, BusinessWeek had several types of articles related to the types of mortgages out there," said Beanie Self, who has a long resume of participation in community affairs groups. "The interesting thing is we're the only government in the world that rewards people for buying houses, and we reward them because we allow mortgage deduction on income taxes."

In other words, fringe lending abuse survives and thrives because of interwoven dynamics, all connected on several levels.

"And I think our role really is to educate, and if we can get people sort of informed on the issue so there's at least some intelligent discussion, I think that'll be good," Neale said.

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