NASHVILLE — Neon signs and billboards advertising payday loans are scattered across Tennessee, and legislation (HB 1954) introduced in the state House seeks to ensure existing state laws about the practice are enforced.

Current law prohibits Tennessee consumers from taking out more than two payday loans at a time, and those loans can’t total more than $500 collectively. However, there’s no system in place for lenders to make sure people aren’t asking for more than the law allows, explains Andy Spears, executive director of Tennessee Citizen Action.

“We think at the minimum, if we’re going to have payday lending in Tennessee, lenders ought to follow the rules and the accountability ought to be on the side of the lenders,” says Spears. “This bill creates a database that would allow lenders to check and see how many loans a consumer had out. That’s going to be a much more responsible practice.”

If passed, the state will be able to perform audits to make sure lenders are checking the statewide database.

Further discussion of the legislation is on hold until March, when the federal Consumer Financial Protection Bureau (CFPB) is expected to release additional regulations that may impact payday lending practices in states where it is legal.

Spears says limiting the amount Tennessee consumers can borrow has their best interest at heart.

“The law was designed to both protect consumers and to ensure that the lender gets paid back,” he says. “If someone has four and five loans, it’s very unlikely they’re going to be able to pay those back, and they get into a trap. It ruins their banking situation if they have one. It just spirals out of control very quickly.”

A CFPB study also found that once consumers get into payday debt, they rarely emerge from that debt. It says 80 percent of payday-lending customers took out new loans within 14 days of securing a previous loan.

In Tennessee, payday lenders can charge annual percentage rates of more than 400 percent.

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