ATLANTA – Georgia lawmakers advanced legislation Monday to cap interest rates charged by the state’s auto-title pawn industry that consumer advocates claim trap low-income families with unfair lending practices.
Title pawns proliferated in the state following a crackdown more than a decade ago on traditional payday lending, in which cash-strapped individuals with poor credit take out small 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. The loans carry high interest rates, at times in the triple digits, and can cost borrowers their vehicles plus the balance of any unpaid debt upon default.
While traditional payday loans are capped, state law continues treating auto-title loans like pawn shops that do not face limits on interest rates. Critics say the practice allows lending companies to profit from low-income borrowers unable to pay off the loan’s principal and at risk of having their cars repossessed.
Senate Bill 329 would cap interest rates at the same amount – roughly 60% – as other small loans are regulated in Georgia. It would also set stricter terms for refinancing loans and set limits on how much money a lender could collect on default.
The bill originally capped rates at 36% but its sponsor, Sen. Randy Robertson, removed that lower limit just ahead of a hearing in the Senate Finance Committee on Monday.
Robertson, R-Cataula, said the rate cap aims to protect Georgia families stuck in debt cycles and help them potentially “become a part of the mainstream banking community.”
The bill aims to help struggling Georgia families avoid getting stuck in the type of debt cycles that can motivate desperate people to commit crimes.
“Generations to come would not be trapped in the financial world where you have to borrow a little bit of money at an exorbitant interest rate,” Robertson said Monday.
The bill passed out of the committee Monday by a 5-4 vote, with a tie-breaking vote cast by committee Chairman Chuck Hufstetler, R-Rome. The bill now heads to the full Senate.
Consumer-protection advocates hail the measure as a deterrent to predatorial lending. Stephanie Cockfield, the finance education director for the nonprofit The Ark in Athens, said last month her group has long helped people refinance their title loans after struggling for years to pay them off.
“There just is no way out of it unless you can pay in full,” Cockfield said. “You can literally be in this loan until you die, and the balance will be the exact same as when you first took out the loan.”
Representatives from title lending companies, including Savannah-based TitleMax, said last month that an interest rate cap like Robertson’s bill proposes could put them out of business.
Hundreds of title pawns closed shop in California after that state passed legislation capping interest rates recently, said Carrie Carbone, chief legal officer for TitleMax’s parent company, TMX Finance. Without title pawns, people in a financial pinch have fewer legal options to pay off monthly bills and other expenses, she said.
“It clearly is designed to kill the title pawn industry,” Carbone said.
Sen. Nan Orrock, D-Atlanta, said raising the rate cap from 36% to roughly 60% should keep title-loan companies from going out of business.
“They’ll be in business,” Orrock said Monday. “That’s just as clear as the nose on your face.”
Speaking after the hearing, Robertson said he opted to reduce the rate cap amid pushback from the title loan industry and concerns the measure might not otherwise pass out of committee.
He said the slightly higher rate would bring parity to title loans and other small-sum lending instruments in the state.
“This lines it up with everything else,” Robertson said.