It is sad that all too many Georgians, whatever their situation, have a history of not paying back their debts— and that in turn means banks and other financial institutions avoid lending to these high-risk individuals. So, when they need financial assistance, their legal options are very limited. The good news, though, is that Georgians with bad or no credit have the option of pledging their car title to receive fast, short-term financial help.
Many of these title pawn customers are contractors who need cash right away to start a job. They have a clear title on their vehicle, but bad credit. If they can’t buy their supplies, they can’t do the job. Indeed, without the title pawn option, many consumers would be forced to sell their vehicle in time of need.
The knock on these transactions is that they are high interest and can be rolled over indefinitely– potentially creating a cycle of debt for consumers– and that excess proceeds should be returned when a car is repossessed. While a high interest rate is understandable (they are high-risk consumers, mostly with titles to old or unreliable cars), I have introduced House Bill 353 to help end the cycle of debt and return excess proceeds to consumers.
HB 353 allows title pawn companies the ability to offer customers an amortized product that results in a zero balance at the end of the term of the transaction. The pawn cannot be rolled-over, there is no early prepayment penalty, no balloon payments and no elevated interest on this transaction. It also requires the companies to return any excess proceeds to the consumers if they repossess the vehicle if the consumer defaults.
Unfortunately, this consumer protection measure is under attack – and not by the title pawn industry. Again, this bill only proposes to end the cycle of debt and return excess proceeds to the customer. Who could be against that?
Here’s the rest of the story: Industrial loan companies also offer a product to high-risk consumers. It’s a different product that many title pawn customers cannot qualify for because it requires a credit check. With title pawns, you simply pledge your title. Industrial loans take their customers to court upon default to recover their money. Interest rates are higher for a pawn, but the industrial loan interest rates are enhanced tremendously by product add-ons (like insurance products), which get them around the usury rates.
So if they are different products, oftentimes with a different customer base, why does the industrial loan industry care about a bill that increases consumer protection for title pawn customers?
The answer is regulation.
Industrial loan companies complain that title pawns are not regulated like industrial loan companies are regulated. While title pawn issues are directed to the state Office of Consumer Affairs and the federal Consumer Financial Protection Bureau also regulates the industry, that’s not what they really mean.
Industrial loan companies must make an application to the state to receive a license. After reviewing to ensure that such license does not adversely impact the operations of another license holder, a license can be granted. In short, their market is protected by regulation. Title pawns, in contrast, are free to compete in markets where allowed by local governments.
Industrial loan companies are vigorously fighting a bill that affords new consumer protections– because it doesn’t protect industrial loan companies from competition. It would be sad, indeed, if these needed consumer protections in HB 353 failed to pass because the highly-profitable industrial loan industry simply wants to crush any “competition.”
The author is state Rep. Brett Harrell, R-Snellville.
