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VOL. 121 | NO. 188 | Monday, September 25, 2006

Push is On Statewide To Combat High-Interest Title Loans

By Andy Meek

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PURSE STRINGS: Madison Avenue in Downtown Memphis includes a handful of lending operations, including title loan businesses. The Tennessee General Assembly may focus on title loans during the coming legislative session. -- Photo By Andy Meek

"We look at the big picture," the company 745-CASH assures its customers in advertisements. And by that, the title loan operation in Memphis - one of about 900 in Tennessee - means it never runs credit checks on consumers and processes most loans in about 20 minutes.

Once that's done, a customer who's hit a bad patch simply is able to walk out the door, usually underneath the brightly colored green-and-red 745-CASH logo, with as much as $2,500 in hand. It's quick cash, an easy loan, problem solved.

But because Tennessee has one of the most lax auto title pledge laws in the country, according to some consumer advocates, it's becoming likely state legislators will zero in on the industry's practices during the coming legislative session that begins in January.

High interest, low blow

"I think the issue of title pawn lending is actually one that's harder to defend than the bad mortgage lending. It's worse in a lot of ways. It's more unconscionable than a lot of the mortgage lending practices."
- Webb Brewer
General counsel and director of advocacy for Memphis Area Legal Services

One reason: That down-on-his-luck borrower who put up his car title for the $2,500 loan can end up paying back the loan with interest of 264 percent, spread out over the course of a year. That's why, with mounting fees that eventually could surpass the value of the car itself, paying the piper at any of Tennessee's title loan shops is a little like learning to swim while being caught in a tsunami.

"There was some thought that there'd be a push last year to address the interest rate issue, but that didn't happen, and that probably was largely because of the emphasis on mortgage lending," said Webb Brewer, general counsel and director of advocacy for Memphis Area Legal Services.

The emphasis on mortgage lending he referred to was the anti-predatory lending law passed by the Tennessee General Assembly earlier this year during the legislature's last session. Among other things, the law tightens definitions of acceptable fees that lenders can charge, and it prohibits lending to people who appear unlikely to be able to repay the loan. It goes into effect Jan. 1.

Round two of the legislative battle against fringe lenders in Tennessee now is shaping up to be one against the title loan industry.

Title Loans and Tennessee
WHAT: Push to increase regulation on Tennessee's title loan industry

WHEN: Possibly during the coming legislative session

WHY: To read a report on the state's title loan industry, visit the Tennessee Department of Financial Institutions at http://www.tennessee.gov/tdfi/admin/GeneralAssemblyReportTitlePledge.pdf

"We certainly hope the legislature will take up the title pledge issue in this coming session," Brewer said. "I think the issue of title pawn lending is actually one that's harder to defend than the bad mortgage lending. It's worse in a lot of ways. It's more unconscionable than a lot of the mortgage lending practices."

Hopping on the wagon

The MemphisDEBT Collaborative, a group whose members represent a cross section of the government and business communities, met last week to chart its next course. It, too, had a hand in the push for a tough anti-predatory lending law, and now it, too, wants to set its sights on title loan businesses.

"We had one of our quarterly meetings yesterday, and one of the issues that came up was, 'Well, where do we go from here?'" said Corky Neale, a research and innovation specialist for the RISE (Responsibility, Initiative, Solutions, Empowerment) Foundation.

"I don't think it's entirely clear what the consensus is, other than there has been more than just a little bit of interest expressed in the auto title loan piece."

Cars may help people get from here to there, but it's the state's title lending industry that's taking consumers for a ride, suggests a report released in February by the Tennessee Department of Financial Institutions. For example, while state law permits lenders to tack 264 percent in fees over the course of a year onto title loans, some lenders in Tennessee are going even beyond that.

Using data from 2004, the report also found that title loans were renewed - thus putting the customer at the mercy of the interest and other fees - an average of seven times. Generally, consumers at title lending shops in Tennessee needed 360 days from the day they signed the loan documents to the time they had all of it paid back.

More than one-fourth of title lenders surveyed for the report charged illegal fees. And while the average extended loan was renewed seven times, the maximum number of renewals was 105 times. Assuming a 30-day window, that's an eight-year period of paying back a small, one-time loan.

The envelope, please

Title lenders generally don't curry scrutiny of their operations. Several lenders contacted in Memphis either refused to talk to a reporter or referred calls to management companies that did not respond to inquiries.

Brad Smoot, an attorney for LoanMax - a title loan company based in Georgia - told the Kansas City Star newspaper recently that his company doesn't often repossess cars and that most customers repay their loans in 30 to 90 days.

Meanwhile, an organized coalition is beginning to be patched together in Tennessee that basically can operate the same way as the group that won enough legislative support to pass the recent predatory lending bill.

"It was through a lot of effort, some lobbying efforts, some personal contact efforts, some real hard sort of coalition politics that made that thing happen," Neale said. "And so I think what we need to do first of all is kind of understand where Tennessee is with respect to title loan stuff.

"And I do believe there is real significant interest, at least from our membership, in trying to push that envelope."

PROPERTY SALES 85 205 21,165
MORTGAGES 76 206 24,338
BUILDING PERMITS 183 321 43,755
BANKRUPTCIES 48 92 13,560