ATLANTA – Georgian lawmakers have proposed legislation to cap interest rates charged by the state auto pawn industry which consumer advocates say trap low-income families with unfair lending practices.
Title deeds have proliferated in the state following a crackdown more than a decade ago of traditional payday loans, in which cash-strapped people with poor credit take out small amounts of money. loans at high interest rates.
With title pawns, a person’s vehicle is used as collateral for a loan without the need for a credit check. Loans carry high interest rates, sometimes triple digits, and can cost borrowers their vehicles as well as any outstanding debt balances in the event of default.
While traditional payday loans are capped, state law continues to treat auto title loans like pawn shops that are not subject to interest rate limits. Critics say the practice allows loan companies to take advantage of low-income borrowers who are unable to repay the loan principal and risk having their cars repossessed.
Senate Bill 329 would cap interest rates at the same amount – about 60% – that other small loans are regulated in Georgia. It would also set stricter conditions for refinancing loans and set limits on the amount of money a lender could receive in the event of default.
The bill originally capped rates at 36%, but its sponsor, Senator Randy Robertson, removed that lower limit just before a hearing before the Senate Finance Committee on Monday.
Robertson, R-Cataula, said the rate cap was intended to protect Georgian families stuck in debt cycles and potentially help them “become part of the traditional banking community”.
The bill aims to help struggling Georgian families avoid getting stuck in the kind of debt cycles that can motivate desperate people to commit crimes.
“The generations to come would not be trapped in the financial world where you have to borrow some money at an exorbitant interest rate,” Robertson said Monday.
The bill was rejected by committee on Monday by a 5-4 vote, with a decisive vote cast by committee chairman Chuck Hufstetler, R-Rome. The bill is now heading for the full Senate.
Consumer protection advocates hail the measure as a deterrent against predatory lending. Stephanie Cockfield, director of financial education for the nonprofit The Ark in Athens, said last month her group has a long history of helping people refinance their securities loans after struggling for years to repay them .
“There’s just no way out of this unless you can pay in full,” Cockfield said. “You can literally be on this loan until you die, and the balance will be exactly the same as when you first took out the loan.”
Representatives from securities lending firms, including Savannah-based TitleMax, said last month that an interest rate cap like Robertson’s bill proposes could bankrupt them.
Hundreds of securities pawns have gone out of business in California after that state recently passed interest rate cap law, said Carrie Carbone, general counsel at TitleMax’s parent company, TMX Finance. Without title deeds, people in financial difficulty have fewer legal options to pay their monthly bills and other expenses, she said.
“It’s clearly designed to kill the title pawn industry,” Carbone said.
Senator Nan Orrock, D-Atlanta, said raising the cap rate from 36% to about 60% should keep securities lending companies from going bankrupt.
“They will be in business,” Orrock said Monday. “It’s as clear as the nose on your face.”
Speaking after the hearing, Robertson said he chose to lower the rate cap amid the downturn in the securities lending industry and feared the measure would otherwise be rejected by the committee.
He said the slightly higher rate would bring parity to securities lending and other small lending instruments in the state.
“It matches everything else,” Robertson said.