ATLANTA – The practice of pledging car title to make ends meet could become a bit more restrictive in Georgia under a bill with bipartisan backing.
By using a vehicle as collateral, auto title loans quickly provide small amounts of money to cash-strapped borrowers without the need for a credit check. The loans, which can carry high triple-digit interest rates, can cost borrowers their vehicles as well as any outstanding debt balances in the event of default.
For developers, loans provide a way for people to stay afloat financially in times of hardship. These borrowers may not be eligible for other types of loans offered by banks or credit unions, depending on the securities lenders. High interest rates help offset the risk of lending to less financially stable borrowers, they say.
But critics argue that the practice helps trap the state’s most vulnerable populations in a cycle of debt, especially for black and low-income communities. Consumer groups have long called for more legal safeguards on securities lending to curb so-called “predatory lending” techniques.
Senate Bill 329 would cap interest rates at 36% per annum for auto title loans in Georgia, closer to how other small-sum loans are regulated. It would also set stricter conditions for refinancing and set limits on the amount of money a lender could receive in the event of default.
Bill’s sponsor Senator Randy Robertson R-Cataula said he was inspired by a Columbus voter whose elderly father pledged his car title to pay his utility bills and then fell into a hole because of the increasing monthly loan payments. 166% interest rate.
Robertson said he modeled legislation on the 37% interest rate caps that the U.S. Department of Defense imposed on loans approved for the military in 2006.
“I don’t want to kill the businesses and I certainly don’t want to close a path that a segment of the population might need to get by,” he said. “What I want to do is align this path with what comes closest to it.”
Senator Chuck Hufstetler, Republican Chairman of the Senate Finance Committee, is a co-sponsor of the bill along with three fellow Democrats: Senator Zahra Karinshak, Ed Harbison and Sheikh Rahman.
The bill would also move regulation of small consumer loans from the State Department of Insurance to the State Department of Banking and Finance. Governor Brian Kemp has already thought about this entry in the state budget for fiscal year 2021.
Small consumer loans are regulated to varying degrees in Georgia depending on the size and type of loan, but none can carry interest rates greater than about 60% per annum below the usury cap. State.
This does not cover loans involving car titles, which state law considers pledged items. Pawn shops are subject to interest rates of 25% per month for the first 90 days, and then 12.5% per month every 30 days thereafter.
Consumer protection advocates see the designation of pledges as a loophole that has prompted automatic title lending to swell in Georgia. The Georgia Watch non-profit group estimated that 755 securities lending companies were open in Georgia in 2018 and collected a total of nearly $ 200 million in interest.
Georgia Watch executive director Liz Coyle said these companies often prey on distressed borrowers who are desperate for cash and willing to take on high-interest loans for years to avoid losing their cars.
“Pledging your car’s title is not the same as pledging your grandfather’s watch,” Coyle said. “It’s a debt trap.”
Robert Reich, president and CEO of Atlanta-based loan company Community Loans of America, disagreed with this characterization. In a statement, he said the high interest rates reflect the risk of these loans and argued that they should be regulated by local county and city rules, not by the state.
“These are high risk financial transactions, and we look forward to working with the author to learn more about our industry in the hope of providing non-bank clients with options that would not otherwise exist,” Reich said. .
A better approach, Reich said, would be to adopt the regulations proposed in legislation passed in 2017 by Representative Brett Harrell, R-Snellville, which would limit loan terms but keep largely the same interest rates. Georgia Watch called the measure not tough enough. He stalled in the State House.
For his part, Robertson has pitched his bill as a way to curb small loans that could help alleviate “generational poverty” that can inspire people to commit crimes.
Robertson, a retired major in the Muscogee County Sheriff’s Office, said many Georgians who ended up in jail were raised in families who had to call in “quick cash-type businesses” to join. both ends.
“It empties jails and jails,” Robertson said of his bill. “We have to stop the behavior that causes them to be incarcerated, and I think reliance on predatory loans is part of that behavior.”