ProPublica & Tennessee Lookout Report on Pay Day Lending in Tennessee

ProPublica has a long expose about a product called Flex Loan, legal in Tennessee since 2015. The reporting was a joint effort with Tennessee Lookout. Since the invention of the Flex Loan, which allows the lender to collect interest at a 279.5% annual rate, Advance Financial, a leader in Flex Loan lending, has sued 110,000 residents of Tennessee. In one county, it has filed one law suit for every 32 residents. Because the Tennessee legislature permits the collection of attorneys’ fees in such suits, suing indebted clients is a great business model, especially when 40% of the judgments result in wage garnishments.

The cases are pretty easy to win. Advance Financial’s clients can’t afford attorneys. Often, the clients do not show up and are subject to default judgments. When they do show up, they often settle, agreeing to new payment plans that prolong their indebtedness. Since 2015, Advance Financial has won $200 million in judgments. If a client has a lawyer, a court might reduce fees based on unconscionability.

Other states were quick to see the catastrophic consequences of allowing this scheme. The Flex Loan gets around usury laws by charging 24% interest plus a 0.7% “fee” for every day the loan is not paid. The federal government characterizes the fees as interest; Tennessee does not. Virginia launched an investigation of Advance Financial in 2020 and eventually labeled the company a “predatory lender.” California and North Dakota soon capped interest rates on open-ended lines of credit, presumably characterizing the “fees” as interest, thus reining in the Flex Loans. 

Why doesn’t Tennessee see the fees as interest? Perhaps because the payday lenders have paid a combined $5.5. million since 2014 on lobbying and campaign donations in Tennessee. Of course, federal regulators, such as the Consumer Financial Protection Bureau (CFPB) could step in, but the payday lenders have also contributed $3 million to the President’s camapaign, which means he is probably on the side of lenders.

Certainly, the President has not supported CFPB efforts to regulate the industry. During his first administration, the CFPB director rescinded most CFPB regulations of the payday lending in 2020. More recently, as discussed here, the current CFPB director has attempted fire 90% of the agency’s employees. Perhaps the work of the ProPublica and Tennessee Lookout will call attention to the subject. Perhaps Tennessee’s regulators will be moved to act. Certainly, the federal government is not going to do anything to help struggling Americans in the next four years.