ATLANTA — The practice of pawning your car title to make ends meet could get a little more restrictive in Georgia under a bill that has bipartisan support.
Using a vehicle as collateral, auto-title loans provide small amounts of money quickly 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 the balance of any outstanding debt in the event of default.
For developers, loans offer people a way to stay financially afloat in times of hardship. These borrowers may not qualify for other types of loans offered by banks or credit unions, depending on the lenders in title. 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 low-income and black communities. Consumer groups have long called for more legal safeguards on title loans 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 regulating other small-value loans. It would also set stricter conditions for refinancing and set limits on how much a lender could collect in the event of default.
The bill’s sponsor, Sen. Randy Robertson, R-Cataula, said he was inspired by a Columbus voter whose elderly father pawned his car title to pay his utility bills, then fell into a hole due to increasing monthly loan payments. Interest rate of 166%.
Robertson said he modeled the legislation on the 37% interest rate caps the US Department of Defense imposed on loans approved for the military in 2006.
“I don’t want to kill business and I certainly don’t want to close a lane that a segment of the population may need to get around,” he said. “What I want to do is line up that lane with the closest thing.”
Senator Chuck Hufstetler, Republican chairman of the Senate Finance Committee, is a co-sponsor of the bill with three fellow Democrats: senses 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. Gov. Brian Kemp has already estimated this will go into the state budget for fiscal year 2021.
Small consumer loans are regulated to varying degrees in Georgia depending on the amount and type of loan, but none can carry interest rates above about 60% per annum under the loan’s usury cap. State.
This does not cover loans involving car titles, which state law considers pledged items. Pawnshop transactions are subject to interest rates of 25% per month for the first 90 days, then 12.5% per month for every 30 days thereafter.
Consumer protection advocates see the pledge designation as a loophole that prompted automatic securities lending to balloon in Georgia. The nonprofit group Georgia Watch estimated that 755 securities lending companies were open in Georgia in 2018 and accrued nearly $200 million in interest.
Georgia Watch executive director Liz Coyle said these companies often prey on troubled borrowers who desperately need money and are willing to pay off high-interest loans for years to avoid lose their car.
“Pawning your car title is not the same as pawning your grandfather’s watch,” Coyle said. “It’s a debt trap.”
Robert Reich, president and CEO of Atlanta-based lending company Community Loans of America, disagreed with this characterization. In a statement, he said the high interest rates reflected the risk of such loans and argued that they should be regulated by local county and city rules, not the state.
“These are high-risk financial transactions, and we look forward to working with the author to further educate about our industry in hopes of empowering unbanked customers with options that otherwise wouldn’t exist,” Reich said.
A better approach, Reich said, would be to go with the regulations proposed in legislation introduced in 2017 by Rep. Brett Harrell, R-Snellville, that would limit loan terms but keep interest rates largely the same. Georgia Watch called this measure not tough enough. He stalled at the State House.
For his part, Robertson framed his bill as a way to curb small loans that could help alleviate the “generational poverty” that can drive people to commit crimes.
Robertson, a retired major with the Muscogee County Sheriff’s Office, said many Georgians who end up in jail were raised in families that had to operate “quick money type businesses” to make ends meet.
“It empties jails and jails,” Robertson said of his bill. “We need to stop the behavior that gets them incarcerated, and I think relying on predatory loans is part of that behavior.”