This is something the state of Tennessee desperately needs to consider. TN is one of the leading states in terms of the number of cash advance, title loan, and payday loan companies we have operating throughout the state. We are also one of the leading states for personal bankruptcy filings. These companies, sometimes called predatory lenders, are no different than loan sharks in how they take advantage of people and in many ways they are worse.
The types of loans they issue often tack on outrageous fees and interest rates that can exceed 2000 percent APR. No that’s not a typo –most states have no regulations on the amount of interest that can be charged on these types of loans.
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States should not regulate interest rates separate from the nation at large. Once our state starts dropping/raising interest rates, or banning certain forms of commerce, we can legislate ourselves into recession. Then businesses leave or pass us up and soon we’ll all need loans to get by.
While I agree that states can definitely legislate themselves into trouble, states (including TN) had usury laws not too long ago, and those laws didn’t result in recession or a depressed economy. Payday loans, title loans, and other high interest loans are a new phenomena that don’t fall under federal regulations the same way normal bank loans do. These loan rates are not set by the Fed and as such are out of control. 500 to 2000% on a small loan to an individual where often the individual is deceived about the nature of the loan is outrageous.
Also, these loans are small personal loans and capping interest rates on them doesn’t impact the macro/business economy with the exception being these specific lenders. I doubt there will be many tears shed over these predators being reigned in. Especially, when their practices are actually hurting the economy at large by enslaving a large number of people into debt they can’t escape from.