A motorist passes numerous loan service businesses off Ringgold Road in East Ridge on Monday. Chattanooga has a high number of payday lenders.

NASHVILLE — The head of a Tennessee-based consumer advocacy group lauded as a 'good start' the federal Consumer Finance Protection Bureau's proposed rules on small-dollar lending by the payday and car title loan industry. 

Charging the industry is filled with "loan sharks" and "predatory lenders," Andy Spears, executive director of Tennessee Citizens Action, said at a news conference today that his group has unsuccessfully sought to curb the industry's worst practices in the state Legislature but run into road blocks.

"Tennessee families pay more than $400 million a year in payday and car title lending fees," Spears told reporters. "The average Tennessee borrower pays $490 in fees to borrow $300 for five months."

Spears said "today's proposed rule by the CFPB is a good start. It focuses on the ability to repay which is a critical element missing because the current standard is the ability to collect."

In announcing the proposed federal rules, CFPB Director Richard Cordray said in a statement that "too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt. 

"It's much like getting into a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey," Cordray added.

But the Tennessee Flexible Finance Association is attacking the proposed federal rule, saying it threatens to ruin the industry and thereby restrict access to low-dollar loan credit for thousands of Tennesseans.

That would "force" borrowers to seek money from unlicensed "underground" lenders. the industry group said in a statement.

"The CFPB's proposed rules will preempt decades old laws regulating the consumer finance industry in Tennessee," said association member Tina Hodges, CEO of Advance Financial.

Hodges charged that "once again, the federal government is telling Tennesseans they know how to run the state better than our own elected officials. Restricting credit options will ultimately drive up costs for consumers, cause the loss of thousands of jobs in the state and force borrowers underground to unlicensed lenders."


She also said that despite the CFPB's assertions, its proposed rule would effectively "preempt in whole or part "Tennessee payday lending, title lending and installment lending laws. 

Those law, Hodges added, were developed specifically to address Tennessee consumers' needs "unlike the untested one-size-fits-all regulations that the CFPB has proposed."

Citizen Action's Spears, however, said those Tennessee-specific laws were largely developed by state lawmakers at the behest of the powerful payday and title loan industry.

Payday and title loan companies have contributed at least $2.1 million to Tennessee political candidates and committees between 2010 and 2014, said Spears, who added that has left "the deck so clearly stacked against Tennesseans."

Noting he met a wall over the last two years pushing some proposed curbs in the Legislature, Spears said "we don't have $2.1 million to give to Tennessee politicians."

In Tennessee, a number of state-based businessmen helped pioneer the then-fledgling cash-advance industry in the 1990s. But in 1996, the industry here was threatened with civil suits charging companies were unlawfully charging borrowers "usurious" rates. 

Companies in 1997 muscled a bill through the General Assembly that allowed them to charge the high fees. The industry said at the time the fees were necessary due to high percentages of defaults on high-risk loans that traditional banks would not make, The Nashville Banner reported at the time.

CFPB's Cordray says the proposed rule among other things will make sure borrowers can afford to repay a loan. The "full-payment test" would require lenders to verify the borrowers can afford to make payments while still meeting basic living expenses like rent as well as existing major financial obligations.

The rules are also intended to end "debt traps" by making it more difficult for lenders to re-issue or refinance  a borrower's loans. The CFPB says 80 percent of payday loans are re-borrowed within a month.

Proposed rules would also regulate penalty fees because many lenders have access to borrowers' checking accounts for automatic deductions. If the account is short, the automatic withdrawals can trigger big fees from borrowers by both the debtor's bank and the lender.

Under the new proposed rules, lenders would have to provide written notice of how much and when money would be debited, typically at least three days in advance before trying to do so.

Tennessee Action's Spears said that because the proposed rules amount to some 1,500 pages, he's still sorting through them to see if the proposal is adequate to protect borrowers. Spears also said he and other consumer advocates could push for more curbs during the customary comment period before the federal rules would be acted on.

Joining Spears was the Rev. Alec Miller with the Cooperative Baptist Fellowship who called the rules a "moral necessity."

Asked about the argument that cash-strapped borrowers will have no alternative, Miller and Spears said they're not necessarily trying to put payday lenders out of business but want more of what they consider reasonable practices. 

But they also hope that nonprofit credit unions as well locally owned community banks and faith-based groups will step up to the plate and help borrowers.