Quick cash comes at a cost
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That’s where check advance and title loan companies can help. They have money to lend when money is needed.
In as fast as 15 minutes, a person can get up to $350 from a check advance company or as much as $2,500 from a car title loan business. That’s money which can be life-saving in a pinch.
The problem? That seemingly easy cash comes with a high interest rate – sometimes as high as 391 percent. It gives critics an easy target when unloading on the quick cash industry, which they say preys on the poor. And the fact there are at least eight check advance companies in McMinnville, some which offer title loans, indicates the businesses are profitable.
“It’s beginning to be a pretty saturated field,” said Steve Poole of Tennessee Title Loan, located on the corner of Locust and Chancery. “These places are popping up everywhere.”
Check advance and title lenders say they’re providing a service to people who would have trouble obtaining a loan otherwise. They maintain their interest rates are competitive with other types of short-term loans and bank overdraft protection fees, and are necessary because their customers are high credit risks who often don’t pay.
“If anyone can find a loan faster than we give it, and cheaper than we give it, then they should go ahead and get it,” said Cash Express spokesman Jeff Olson. Cash Express has a McMinnville branch in Northgate Shopping Center. “The banks are mad because we steal their business. But if you bounce a check at a bank, they’re going to charge you a $30 fee, so what’s the difference?”
Under state law, check advance companies can charge a maximum fee of $30 per transaction. That means it’s a $30 fee whether you borrow $200 or $350.
With such short-term loans, usually two weeks, the interest rate for borrowing $200 is 391 percent. The rate for borrowing $350 is 223 percent.
What makes the situation more problematic is the loans are commonly renewed after two weeks because the borrower doesn’t have the money. That means there’s another $30 fee.
For a person who takes out a $200 loan and renews it throughout the course of a year, the interest payments alone will come to $780.
In contrast, First National Bank offers similar loans at greatly reduced interest rates. Bank officials said the rate for any loan under $1,000 is 10 percent, plus a $20 loan fee. With the fee included, the annual payments on a $200 loan from First National Bank would be $40 – a difference of $740.
This information isn’t lost on state legislators, who have formed a Study Committee on Predatory Lending. Last year, lawmakers heard the story of an 80-year-old Memphis woman who lost her car after paying $13,000 on an original $1,000 loan. So far legislators have been critical, but haven’t adopted measures such as a 36 percent interest cap as in Kentucky.
Poole defends the title loan business by saying it helps more people than it hurts.
“To me, it’s very good for the community,” said Poole, who has been in the business 15 years. “You might have a person who misses a few days of work but still needs to pay their electric bill. The service we offer allows them to pay their bills and still drive their car.”
In Tennessee, car title loans cannot exceed $2,500, and that money is due at the end of one month. Lenders can charge up to 22 percent interest, making the payment $550 at the end of one month. Over the course of a year, that’s $6,600.
But Poole describes his customers as “very satisfied” and said his company, headquartered in Atlanta, does have exceptions in place.
“We’re not here to rape the customer so to speak,” said Poole. “And we’re not in the business of buying cars. We’re here to help people.
“We have a program in place where after they pay back three times the value of the loan, they stop paying interest. They just pay back the principal. And if something comes up like a family medical emergency, we can take off a month’s worth of interest. We try to be understanding.”
Expensive loan
It’s standard for check advance companies to charge a $30 fee for a two-week loan of $200.
If that loan is renewed for a year, with a $30 fee each time, total interest is $780, or 391%.
In contrast, a $200 loan from First National Bank can be taken out at 10% interest with a one-time loan fee of $20.
Over the course of a year, the First National loan will cost $40 in interest, a savings of $740.