- What is Georgia’s Bill 329?
- How does it protect borrowers?
- When does it go into effect?
To make ends meet, many people in Georgia use their cars and other vehicles as collateral for title pawns (also known as title loans). However, due to a bill passed in the Senate, this practice might become difficult for some people.
While most people say title pawns help them meet their financial obligations, these loans have also been detrimental to the debt circulation across the state.
Let us look into how this new bill will help Georgia borrowers and what limitations it presents.
Georgia Car Title Pawns
Most people qualify for title pawns because they are easy to get. According to Titlelo.com, the requirements for a title pawn are as simple as having a car title, insurance, and identification. However, since these are small loans with high-risk potential, the interest rates has been traditionally high. It was so high that people would often lose their vehicles and would still have to pay.
At the same time, due to stringent economic conditions in certain parts of Georgia, many people relied on these loans for quick cash. Many of the economically challenged individuals have long suffered at the hands of credit checks and balances that will not allow them to qualify for bank loans, and so they resort to pawning their vehicle title as collateral.
In response, certain experts suggest that such lending practices can lead to monetarily vulnerable communities into a dark and long-lasting debt cycle.
It can be especially true for low-income African American communities in the state of Georgia. With high-interest rates and no credit checks, the lenders use predatory methods to entice people into borrowing and then trapping them, often forever, into a debt trap.
Senate Bill 329
Therefore, to curb the dangers posed to vulnerable communities, the Senate passed Bill 329, which would cap the interest rates at 36% for all auto-title loans.
This would mean that the previously arbitrary lending methods would be eradicated, and all informal ways of lending would be mediated through a regulated body that would make sure that no lending contract goes beyond the 36% interest rate for any loan.
This will not only protect borrowers but also keep a check and balance on the informal economy. It would also help people escape the debt cycle that may have entrapped them for years and years to come.
Senate Bill 329 is formally called the “Motor Vehicle Title Loan Act,” and it comes with various terms and conditions apart from simply capping the annual interest rates. According to a state senator, it was inspired by the bill passed in 2006 that set caps of 37% interest for loans taken out by military members.
This bill is also set to enforce strict lending rules and regulations. Within these rules, conditions will establish limits on the amount of capital a lender could collect if the loan has defaulted.
Once again, this limit will only help the people to not fall too far into the cycle of debt by allowing them to not give up all their money to lenders upon default. This act also subliminally helps the borrowers by allowing them to keep enough capital for themselves to generate more balance to pay off future installments.
Car title pawns take away nearly $200 million per year from low-income communities in the name of defaulting payments and high-interest rates. Due to the formerly upheld predatory practices of lenders, many borrowers would have to constantly renew their loans to pay off the previous ones, thus trapping them in another vicious debt cycle.
The main point to mention is that since these loans are taken out through a vehicle determined as collateral, most people keep renewing loans just so they won’t have to lose their cars.
Since cars are such integral assets to a person’s mobility, this bill will allow for the people of Georgia to remain secure about the possession of their vehicles that will inevitably help them get around and earn more money to pay off the debts.
More than 30 states do not have this act, and such a bill would help introduce protectionary measures for low-income communities suffering through car title loans in all those states, too.
Other Benefits of the Bill
This bill has come about to protect Georgia’s borrowers from financial instability and introduce a political unity found through bipartisan support for this bill in the Senate. While the partisan divide in America seems to be growing every day, this bill has brought Republicans, Democrats, and Independents all together to push for the enactment of this bill.
The support for this 36% interest rate cap has been far-reaching, and more than 80% of people have voted in support of this new bill. So, it is safe to say that this act is favored by all and will help protect all from predatory lending techniques and from people falling into vicious debt cycles.
Additionally, this bill is also set to regulate small consumer loans and shift their administration from the Department of Insurance to the Department of Banking and Finance. This will be enacted from 2021. This move will help formalize the lending system, and predatory lending techniques will soon not be able to find loopholes to continue their practice.
Under this bill, an arbitrary understanding of the small consumer loans will be taken into consideration where the interest caps cannot go higher than 60%. This will depend entirely on the kind of loan business consumers take out and the amount of the loan.
However, this does not include in the motor vehicle title loans because the state had previously considered them pawned items, and the problem with considering a car title as a pawned item is that it then allows the lender to exploit borrowers.
However, since the enactment of this bill and the transference of departments, all the restrictions put up will ensure that the most vulnerable populations of Georgia are safe from predatory lending techniques. It is especially true for ending the pawning culture involving car titles.
Senate Bill 329 is ready to be enacted starting from the fiscal year 2021. Since it has received such wide-ranging support, it is also safe to say that this bill will inevitably make conditions better for Georgia’s borrowers and the larger economy of the state.
We can now conclude that this bill is here to help the vehicle title loan borrowers, so you won’t have to go through the stress and anxiety of losing your car to collateral. This will also help regulate the lending system through its future administration from the Department of Banking and Finance.