Vanderbilt Lawyer - Volume 37, Number 1

Mounting Interest in a Vital Bill

2008 graduates Tammra Mitchell and Matt Stockstill's work supported a campaign to reign in predatory lenders.

By Grace Renshaw
Matt Stockstill and Tammra Mitchell

2008 graduates Matt Stockstill and Tammra Mitchell. Stockstill, who earned a J.D./MBA, is joining Locke Lord Bissell & Liddell in Dallas as an associate, and Mitchell, who ultimately hopes to work on tax policy issues, is pursuing an LL.M. in taxation at New York University.

Matt Stockstill and Tammra Mitchell's initial task in Professor Laurie Hauber's Community Development Clinic was to work with a statewide advocacy group, the Coalition for Responsible Lending of Tennessee, to research Tennessee laws governing title pledge lending. This spring, the pair's work culminated in testimony before Tennessee's House Utilities Banking Small Business Sub-Committee that kept legislation designed to reign in predatory lending practices allowed under current state law from dying in committee.

Title pledge lending allows borrowers, who are typically low-income and unsophisticated, to use the title to their vehicle as collateral for a short-term, one-month loan. "Currently, title pledge lenders are allowed to charge a fee of 20 percent of the principal of title pledge loans," explains Mitchell. "For a $100 loan, a fee of $20 is charged, and that's in excess of interest." Since the loan term is only a month, if a portion of the loan amount "rolls over" to a second month, the title lender may charge another fee. "The fees and interest together equal an effective rate of 22 percent a month or 264 percent a year," Mitchell says. "Some borrowers get into a vicious cycle of rollovers and end up paying three times the original loan amount to the lender before they manage to pay off the loan."

Mitchell and Stockstill's research supported the Coalition's initiative to change title lending regulations by convincing the Tennessee Legislature to pass House Bill 1984, which would limit title pledge lenders to one fee per loan, enable consumers to obtain the reports that title pledge lenders are required to submit to the state's Commissioner of Financial Institutions, and require consumers to repay a minimum of 10 percent of the loan amount each month. "Currently, consumers can roll over or renew a loan as many times as they want, as long as they pay down five percent of the principal with each renewal," Stockstill explains, "and they don't have to start paying any principal until the third renewal. At that rate, a title pledge loan can last up to 22 months. That's at odds with the short-term nature of these loans."

In his presentation to the subcommittee, Stockstill noted that the federal government's Talent-Nelson Amendment now limited the annual rate of interest short-term lenders may charge military personnel to 36 percent, including fees, a clear indication that title pledge loans had created painful enough financial issues for military personnel that federal intervention was warranted. He also challenged a report based on unaudited financial data submitted by title pledge lenders opposed to the bill.

"Short-term lenders have a strong lobby, and the fact that the subcommittee did not kill the bill as was expected was in large part due to Tammra and Matt's compelling presentations," Professor Hauber said. "Their grasp of the subject matter and persuasive delivery had a significant impact. My guess is that members of this subcomittee rarely hear from people who present the level of detail that Matt and Tammra did, and who can articulate it so clearly." Hauber notes that, as a result of their "outstanding" work, the pair was invited to serve on a state-wide committee created to examine the title pledge interest rate issue further.

In addition to supporting the coalition's effort to sponsor legislation to end predatory lending, Mitchell and Stockstill also worked with a group of Nashville high school students to launch an initiative intended to educate the students and their communities about predatory lending. "Most of the people who take out a title pledge loan don't understand how high the fees and costs can get," Stockstill says. "An informed consumer who understands the pitfalls of these loans is less likely to fall into the expensive trap of rolling one of these loans over month after month."