Legislation Could Cap Short-term Auto Loan Rates

Tennesseans who borrow against the value of their vehicle could find relief in a piece of state legislation.

Currently, if a borrower doesn’t pay off the loan in 30 days, the loan can be renewed an unlimited number of times. These renewals can lead to fees and interest rates up to 264 percent per year. The proposed bill would cap that to 44 percent.

Members of a state House subcommittee heard testimony on the matter today.

Attorney Webb Brewer works at a nonprofit public interest law firm that deals mostly with low-income clients in the Memphis-area. He says many of his clients look to short-term auto loans to deal with an immediate financial hardship.

“Quite often this is a decision that leads them further into a cycle of debt that they find themselves eventually unable to get out of.”

Those who oppose the legislation say increased regulation will put the industry out of business. Billy Mitchell, a representative for Community Loans of America, says borrowers know what they’re getting into before they sign the loan papers.

“Title loan customers make rational and economic decisions. The speakers before me would have you believe the government can make better decisions than the consumers.”

On average, a short-term auto title loan at Community Loans of America is renewed five or six times.

The earliest the bill could pass would be next year’s legislative session.