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Congress is considering legislation to let some lenders skirt Georgia’s heralded ban, dating to 2004, on short-term loans linked to a borrower’s payday. And the Trump administration may soon weaken enforcement of the Military Lending Act, designed to protect service members and the families from debt traps.,That new rule was supposed to take effect this year, but a coalition of payday lenders, installment loan providers and title-pawn companies has brought suit trying to block it. The Trump administration, as part of its promise to roll back regulation, has sided with the companies and signaled it is open to providing waivers to them should the rule take effect.,Title-pawn companies would be affected by the change. They are uniquely clustered in Georgia, where they enjoy little state or federal oversight.
These companies promise quick cash without credit checks, and borrowers get cash in exchange for handing over the title to their car.,Borrowers effectively buy back the title by paying back what they’ve borrowed — under contracts that do not use the word loan but charge steep lending rates allowed to go as high as an annual rate of 187.5 percent.,Some cash-strapped Georgians who have resorted to the title-pawn outlets believe safeguards are needed.,For more than 26 years, Ronald Laster was the on-again off-again guitar player for James Brown until the legendary singer died in 2006. After decades on the road, Laster settled down, and in 2014 bought a house in the Atlanta area.

Then he suffered an injury and needed cash to pay his bills.,The Military Lending Act had bipartisan support in 2006 when it became law after being signed by Republican President George W. Bush. It was expanded through regulations by the Defense Department in 2016 and today the law caps interest and fees on loans to active-duty service members at 36 percent. It applies to installment loans, payday loans and tax refund anticipation loans.,Because title-pawn loans carry annual interest rates far higher than the 36 percent cap, they effectively can’t be marketed to members of the military.,Title-pawn companies have been hurt by one market factor — the growing availability of car loans that stretch over longer periods, even for customers with shaky credit. The longer-term loans, noted Moody’s, reduce the pool of potential title-pawn customers because a car loan must be paid off before the title can collateralize a new debt.,One bill — the Modernizing Credit Opportunities Act — would make it so that banks can effectively lend their charter to third parties that generate loans with interest rates above state caps.,More than 100 consumer and civil rights organizations sent a letter of opposition on May 21 to members of the House Committee on Financial Services, which has yet to vote on the bill.

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The groups called on committee members to resist any effort to “undercut the historic power of the states to protect people from dangerous, usurious loans.”,A similar weakening of state rules is envisioned in the Protecting Consumers’ Access to Credit Act of 2017.
The bill’s summary said it seeks to validate bank loans “regardless of whether a bank has subsequently sold or assigned the loan to a third party.”,That bill passed the U.S. House on a party-line vote last February but has not been taken up in the Senate. Its sponsor, North Carolina Republican Rep.

Patrick McHenry, and the bill’s lone co-sponsor, New York Democratic Rep. Greg Meeks, have each received more than $150,000 in contributions connected to payday lending since 2005 and 1998 respectively, according to a database run by the Center for Responsive Politics.,New York giant Fortress Investment Group in 2010 took a stake in Springleaf Finance Corp., which specialized in loans to troubled borrowers.
In 2015, Springleaf then took a large stake in OneMain Financial, putting them both under the corporate umbrella of OneMain Holdings Inc.

Fortress sold that stake this January for $1.4 billion to Apollo Global Management LLC and Varde Partners.,Private equity behemoth Blackstone Group in 2013 bought into Lendmark Financial Services, which provides installment loans from $500 to $15,000 across the Southeast.,Some boutique Wall Street firms with ownership stakes in these lenders also now package the loans into complex securities that are sold to investors who get a share of the earnings stream.
This sort of bundling of loans is what happened with poorer quality mortgages in the run-up to the housing-led financial crisis in 2008.

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