Critics call 279% loan a ‘debt trap’

Many cash-strapped Tennessee residents have turned to payday loans in tough times.

But a new product called flexible loan is quickly becoming the industry standard.

It is an indefinite line of credit with a whopping 279% annual interest rate.

Tennessee is one of the first states where you can get new flexible loans. Like payday loans, these loans also have high interest rates.

And while those in the industry say flexible loans are better than traditional payday loans, critics and consumers we spoke to say you need to be careful because flexible loans can be difficult to pay off.

When you’re strapped for cash, a flexible loan might seem like the answer.

But for people like Malia Andrews, that was the wrong answer.

“I just had a complete collapse in the car,” Andrews recalls, describing when she realized it would take years to pay off her flexible loan.

She explained, “And only $ 20 of my payment went to the principal and the rest, like $ 300, went to the interest rate.”

The single mom said that if she had known how much the loan would end up costing her, she would never have taken it.

Then there’s Fort Campbell veteran Joshua Hause.

“Everyone was transferred to a flexible loan account – there was no choice,” Hause said.

Hause had two existing loans of $ 925 which he said more than doubled after being converted to a flexible loan.

“All of a sudden our payment is over $ 2,000 for what we owe when it’s never what we took,” Hause said.

And he said he continues to fall behind.

“If they continue to receive higher payments each month, I will never get out of this hole,” he added.

But the CEO of Advance Financial, one of the state’s largest flexible loan lenders, is sold on them.

“We took out 100,000 flexible loans last year, and the majority of our customers love them,” said Tina Hodges. NewsChannel 5 survey.

Hodges explained, “It’s half the price of a payday loan. So I think it’s really good for these consumers – and that’s why they love it so much.

The Nashville-based company had been offering high interest payday loans for years.

But after federal regulators signaled that a crackdown on these so-called predatory loans was underway, lenders like Advance Financial created this new product called flexible loans.

WATCH: Professor Vanderbilt Paige Skiba on the history of flexible lending
(additional web video posted above)

Traditional payday loans were capped at $ 500.

But flexible loans, which are actually open lines of credit, allow consumers to borrow much more money.

And although the interest rate is capped at 24%, the daily fees that lenders are allowed to charge under Tennessee law bring the total annual percentage rate to 279%.

Diane Standaert of the Center for Responsible Lending said: “An annual rate of 279% is absolutely excessive.

Her consumer group is fighting what she calls “abusive financial practices,” and they have taken a stand against flexible lending.

“At the end of the day, flexible loans are just another name for a payday loan – and a payday loan by whatever name is just a debt trap,” Standaert insisted.

She expressed concern at the conditions and costs of these new loans.

“They are designed to generate fees for payday lenders while leaving borrowers in a much worse situation,” Standaert said.

Late last year, the Center released a scathing report describing flexible loans as “excessive” and “loaded with fees.”

NewsChannel 5 survey asked Tina Hodges of Advance Financial what the report said.

“Don’t you agree with that?” we asked.

Hodges replied, “Yeah. I don’t think ‘charge’ is the daily interest rate. There are no late fees. There are no prepayment penalties.”

“But are there the daily usage charges?” we answered.

“Yes, but there isn’t, that’s it,” Hodges replied.

And the CEO of Advance Financial sees no problem with charging an APR of 279%.

“Isn’t that excessive?” we asked.

Hodges responded with a simple “no”.

The Center for Responsible Lending said that under the terms allowed in Tennessee, if you took out a flexible loan of $ 500 and made the minimum payments, you would have paid more than $ 2,600 in fees and interest after three years and you owed still $ 167 in principal.

Flexible loans are “structured in such a way that … paying them back” “is extremely difficult,” the Center wrote in its report last year.

Hodges’ reaction?

“Well, our clients haven’t found that. They haven’t found that at all. We took out 100,000 loans in the year and about 70,000 of our clients [are] active at the moment. “

Still, the Better Business Bureau told NewsChannel 5 that it had seen a dramatic increase in complaints from other Advance Financial customers who called flexible loans “unethical and predatory,” “out of outrage. “and” scam “.

One consumer said she was “shocked and disgusted” by them, while another wrote: “This type of lending practice should be illegal.”

“We take every complaint very seriously,” said Hodges NewsChannel 5 survey.

And although she is convinced that flexible loans are a better product for consumers, not all consumers are convinced.

Malia Andrews said emphatically: “I will never do it again, never again.”

Advance Financial has said that its flexible loans are less expensive than payday loans, but that’s only true if the loan is paid off in a matter of weeks – and critics say this rarely happens.

Advance Financial owner Mike Hodges told NewsChannel 5 that they had received fewer than 100 BBB complaints about the 100,000 flexible loans they had made.

And he denies that anyone has ever been forced into a flexible loan.

In a statement to us, Hodges said his company understands “that the FLEX loan is not for all consumers.”

Here is his full statement:

“My wife and I are proud of the business we’ve built and the 700 neighbors who work with us. We thank the 400,000 customers who vote with their feet and visit Advance Financial each month.

“We are proud to offer the FLEX Loan, an indefinite line of credit that is a more flexible alternative to payday loans in Tennessee at almost half the annual percentage rate. We have worked very diligently to help our clients switch to this lower rate. interest rate loan.

“We understand that the FLEX loan is not suitable for all consumers. Some consumers may prefer payday loans, title loans, or installment loans. Advance Financial offers the FLEX loan because we believe it is a better product in most situations.

“We are committed to providing a world class service experience to every customer. If we can serve you better in any way, please let us know. We are here to help you anytime on or in one of our 24/7 locations. “

About Thelma Wilt

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