Title loan interest could top 300%
No-cap bill mirrors donor's blueprint

The Atlanta Journal-Constitution
Published on: 02/21/06

Georgia's automobile title lending law already among the least consumer-friendly in the nation could become even harsher under an industry-backed proposal being considered by the General Assembly, consumer advocates say.

House Rules Chairman Earl Ehrhart (R-Powder Springs), the recipient of thousands of dollars in campaign contributions from the title lender who is pushing the new proposal, is offering changes that would lift the interest cap on loans backed by car titles, according to lawyers, lawmakers and consumer advocates who have reviewed the legislation.

Such a move could push annual interest rates on the transactions as high as 300 percent under current law even higher.

In an e-mail statement provided by a spokeswoman, Ehrhart said that his substitute bill House Bill 864 does not affect the interest rates allowed under current law. However, a draft of the measure shows that it eliminates any reference to a cap on interest.

In the e-mail, Ehrhart says the proposal is a "comprehensive, consumer-friendly bill that will protect Georgians." He notes that it provides, for the first time, licensing and regulation of the industry in Georgia and strengthens disclosures in every loan agreement. Ehrhart declined to be interviewed.

Consumer advocates say the bill hurts Georgians.

"This is really a bad bill," said Jean Ann Fox, director of consumer protection for the Consumer Federation of America, a Washington-based advocacy group. "It is quite amazing to me that a bill that doesn't improve on the status quo is put forth as reform."

Ehrhart's proposal allows automatic monthly renewals, which consumer advocates say encourage borrowers to drag out repaying the high-cost loans. Lenders would be permitted to sell car club memberships in conjunction with the loans products that drive up finance charges for borrowers while allowing lenders to collect commissions in addition to interest payments.

Former Gov. Roy Barnes, a Democrat whose law firm recently sued two title lenders, said the bill "turns back the clock on what little protection exists in Georgia."

The bill might be heard by Ehrhart's committee this week.

Ehrhart's proposal closely tracks the draft version of a model bill provided by the American Legislative Exchange Council, a Washington-based organization of conservative lawmakers and corporate executives. Ehrhart is the immediate past chairman of ALEC's national board of directors.

An ALEC task force drafted the model title loan bill in August at the urging of Rod Aycox, one of the biggest title lenders in Georgia. Aycox's Alpharetta-based company, Select Management Resources, which operates in nearly two dozen states, became an ALEC member last year, signing up to pay $10,000 a year in dues.

"We had quite a bit of input in it," Aycox said of the model bill. "We asked ALEC to pass it through their committees so we could have sort of an ALEC-sponsored bill."

He said the ALEC panel wrote the model bill "using a lot of my comments and input."

Ehrhart was a member of the panel, and Aycox said he let the lawmaker fly to the ALEC committee meeting in Texas on one of his corporate airplanes.

Ehrhart accepted $15,652 in campaign contributions from title lenders last year, more than all but two other legislators, records show. Aycox, his relatives and his companies provided all but $500 of Ehrhart's total, which included the flight to Texas and one other trip on Aycox's corporate plane. A lobbyist for Aycox's company accompanied Ehrhart on both flights.

Aycox contributed $192,054 to Georgia campaigns last year, the largest share of the title loan industry's $328,310 in political donations, according to a recent analysis by The Atlanta Journal-Constitution. The industry gave less than half that amount during the two previous years combined.

Aycox said Monday that the new proposal offered "a lot of consumer protections," since title lenders would be licensed for the first time and would be required to return money left over after they repossess and sell a borrower's car.

As for removing the interest cap, Aycox said, "I don't think that's intentional."

However, the ALEC model, which Ehrhart used in drafting his bill, does not provide for an interest cap. Lenders and borrowers would negotiate a rate.

Consumer advocates say borrowers have no negotiating power.

"Folks who are desperate enough for money that they would risk losing their vehicle to borrow a few hundred dollars to make ends meet don't feel they have much clout in the market," said Fox, of the Consumer Federation.

The Consumer Federation and several other national consumer groups sent Ehrhart a letter in November detailing their objections to the ALEC model bill.

Georgia lawmakers took up the issue of title lending last year after a series of AJC articles examining title pawns and other kinds of lending that target poor, unsophisticated consumers.

Bills put forth by the House and Senate banking chairmen tinker with ways to make the current law more consumer-friendly. But neither measure lowers the high interest rate the most critical component of meaningful reform, consumer advocates say.

Ehrhart's proposal, which replaces the earlier House bill, would create a new type of loan called a title pledge.

Consumer advocates had hoped the Legislature would lower the cap. Among the 25 states that sanction title lending, rates are highest in those with no interest cap, according to a recent report by the Consumer Federation.

"It is logical to assume that the same companies, if unrestrained by Georgia's generous pawn law, would charge even more," Fox said.

Ehrhart's proposal also would require that consumers pay at least 10 percent of the principal in addition to interest and fees every month if the loan extends beyond 90 days. Consumer advocates describe that provision as a form of "bait and switch."

"Somebody starts with interest only, then gets surprised four months later that what they are going to have to pay goes up," said Amanda Quester, senior policy counsel for the Center for Responsible Lending, an advocacy group based in Durham, N.C.

Ehrhart's proposal would place regulation of the title pledge industry under the state's banking department. Twenty-three of the 25 states that permit title lending impose state regulation. One of the two that don't is Georgia.

Title lenders would submit detailed financial information to the banking department. However, that data would remain confidential, leaving the public no way to assess the industry's profitability or the toll on consumers who default and lose their vehicles to repossession.

Consumer advocates say the provision of Ehrhart's bill allowing title lenders to sell memberships in auto clubs that offer emergency road service could leave desperate borrowers feeling compelled to take them to get a loan.

"In many types of loan products, lenders pack on unnecessary or bogus products to jack up the fees they can charge consumers," Quester said.