Title pawn substitute bill draws heat

LAWRENCEVILLE - A new version of legislation providing minimal reforms to Georgia's title loan industry instead would hurt consumers by eliminating the cap on interest rates in current law, a statewide consumer group charged Monday.

But the substitute bill's sponsor said his proposal would make it easier for title pawn companies to stay in business, giving cash-strapped customers with poor credit a quick way to get money that they wouldn't have otherwise.

The General Assembly began considering overhauling the industry last year after some consumers complained of abuses committed by title lenders, which typically issue small short-term loans to people who put up their cars as collateral.

Customers testifying to lawmakers last summer and fall told stories of falling so far behind on their loans because of high interest rates that they ended up owing far more than their original loans.

The Republican-backed House bill that emerged from those hearings would require title loan companies to refund to customers any proceeds from repossessed cars that exceed what the person owes.

The new measure, introduced late last week as a "trial balloon" by GOP Rules Committee Chairman Earl Ehrhart, would include the provision governing repossessions.

But it would go much further by creating a new law giving the state Department of Banking and Finance oversight over the industry instead of the Office of Consumer Affairs.

Because the new bill makes no mention of interest rates, it would effectively lift a provision in current law that caps interest on title loans at 300 percent per year.

"This bill is just a rollback ... with unlimited interest rates and no help for consumers,'' said Danny Orrock, legislative director for the consumer organization Georgia Watch.

Orrock's group has endorsed legislation introduced by minority Democrats in the House and Senate that would cut the annual cap on interest rates to 60 percent.

Rep. Mary Margaret Oliver, D-Decatur, chief sponsor of the House Democrats' bill, said the people who need title loans the most would be the very group hurt by unlimited interest rates.

"I believe in market forces,'' she said. "But for somebody whose only option for borrowing money to pay a light bill is a title pawn ... market forces won't work.''

But Ehrhart, R-Powder Springs, said the lower interest rates Democrats are seeking would force title lenders to close their doors in Georgia.

"All the Democrats want is to run that segment of the (lending) business out of business,'' he said. "They don't want a single parent who needs $200 to $300 to be able to get a loan.''

Ehrhart is also taking heat from some fellow Republicans.

Rep. Calvin Hill, R-Canton, who chaired the House study committee that examined the title loan issue last year, said he doesn't oppose unlimited interest rates.

But Hill said he is concerned about a provision in Ehrhart's measure that would require title loan customers to pay at least 10 percent of the principal upon the fourth monthly renewal of their loan.

The original House bill, which Hill is cosponsoring, sets that rate at 5 percent, as does title loan legislation expected to be taken up this week in the Senate.

"I think (10 percent) is little onerous for the consumer,'' he said. "That might cause them to default.''