A new bill brings higher loan fees, heavier burden for already struggling

Low-income borrowers will be disproportionately burdened by a bill passed Monday by the Tennessee Senate, critics say, that will boost the fees lenders can charge on some high-cost, short-term loans.

Tennessee industrial loan and thrift (TILT) companies issued just over one million such loans in 2018, which totaled more than $4.1 billion, according to the state. TILT companies are not banks or credit unions, but businesses that offer short-term loans to people who often have bad or no credit and would likely not be eligible for a personal loan from a bank. 

The bill slightly increases two existing fees and adds a third closing fee to some loans. Although the increases seem small, they could have a huge effect on borrowers, experts say, since those who turn to short-term loans are often already low on cash. The additional revenue the law would generate for lenders was not clear on Monday.

The bill was passed 27-6, mostly along party lines, with all six Senate Democrats and Republican Sen. Joey Hensley of Hohenwald voting against it. On March 8, the House passed the bill 70-21. Asked if Republican Gov. Bill Lee would sign the bill into law, a spokesperson said Lee would “likely defer to the legislature’s decision.” 

Hurting Black and low-income families

In Memphis, large chain lenders like One Main Financial and NiceLoans! offer installment loans. 

According to the state fiscal review committee, the average TILT loan in Tennessee is just over $3,500. At that amount, a borrower can now expect to pay an additional $35 for the service fee (for a total of $175), an additional $2.50 monthly for the maintenance fee ($5 total monthly), plus the repayment amount with interest at 30%. 

Before Monday’s vote, Sen. Ken Yager, R-Kingston, said he supported the bill “because it will continue to allow the industry to provide needed credit to a segment of our population that would not be able to acquire credit through the commercial lending, banking services.” 

But Senate Minority Leader Jeff Yarbro, D-Nashville, argued Monday that the bill would hurt those who are already in a financially precarious situation. “In a year with this many challenges, I worry that this is only going to put pressure in the wrong direction.”

Elena Delavega, an associate professor of social work at the University of Memphis, said that people in poverty are much less likely to have access to credit and are therefore much more likely to rely on high-cost, short-term loans. In Memphis, the overall poverty rate is 21.7%, while just over 26% of Black residents live below the poverty line.

“The reality is that we make it very, very hard for people who are in poverty to have access to any credit or the opportunity to build wealth… This is one of the reasons particularly minority wealth is so low to nonexistent,” said Delavega, who is also a research associate at The Benjamin L. Hooks Institute for Social Change at the university. A recent federal study found white families’ median wealth of $188,200 is almost eight times as high as that of Black families, whose median wealth is $24,100.

The bill’s sponsor, Senate Majority Leader Jack Johnson, R-Franklin, said the legislation increases the fee structure to help lenders cover costs of doing business, such as credit investigation, underwriting and document preparation. 

“The servicing of these loans (is) time-consuming and there are a lot of disclosures that have to be provided and documented… The regulatory aspects of these loans have become far more expensive,” Johnson said Monday.

The growing costs come from new Consumer Financial Protection Bureau restrictions, a spokesman for Johnson said, although he did not answer…