With Republican rise, payday loan companies became a potent political force. Cash-strapped Tennesseans pay the price.

"Their goal isn't for you to pay the money back. Instead, they want you making small payments, never actually paying off your debt, for as long as possible." Kiyadh Burt lending analyst with Hope Policy Institute

NASHVILLE – For years, Carlos Restrepo operated a small trucking business in Nashville – until his insurance rates unexpectedly increased.

In need of immediate cash and with nowhere to turn, 62-year-old Restrepo took out a flex loan with Advance Financial.

"It was easy," he said. "Before I used Advance Financial to send money to my family. When I needed cash they offered it to me saying all they needed was my bank account number."

But, for Restrepo, paying back the loan was not so easy.

After defaulting on the loan, Advance Financial sued him, and according to court documents, he will pay back roughly $14,000 on a $2,500 loan. Restrepo will pay over five times the amount of the initial loan thanks to an interest rate made legal by Tennessee lawmakers.

The state constitution was amended in 1979 to give lawmakers the ability to control interest rates, and this is why the companies and owners of high-interest, or payday, lenders like Advance Financial, Check into Cash, TitleMax, and many others have spent millions of dollars building one of the largest lobbying machines in Tennessee, particularly since Republicans began taking full control of state government in the early 2010s.

An investigation by The Tennessean found that by using a half dozen political action committees (PACs), these companies have given Tennessee politicians $4.4 million over the past 10 years. Simultaneously, they've spent another $10.4 million hiring some of Nashville's top lobbying firms to advocate for new types of lending laws and fight potential regulation.

Interest and fees from Restrepo and thousands of others like him are just the first step of a multipart process that sees a portion of money from Tennessee's working class end up in the campaign accounts of lawmakers and the pockets of lobbyists.

These lenders target the working poor and young people, often in Black and Hispanic communities, because statistically these demographics lack connections to traditional banking.

Memphis is a notable example. The city's 114 payday lenders are concentrated in areas with higher Black and Hispanic populations, according to a study by the Hope Policy Institute published earlier this year.

Payday lenders aren't allowed to operate in every state, but in Tennessee there are over 1,900 registered lenders. On the most expensive loan offered, lenders can charge interest rates over 100 times more than a normal bank.

Through its lobbying and donation power high-interest lenders tend to fight any regulation attempts by lawmakers, implying any new rules could eliminate the industry entirely.

But it doesn't have to be this way.

Alex Horowitz, a consumer finance researcher with Pew Charitable Trust, said it's a "false choice," for lawmakers to choose between no regulation or regulation and the elimination of payday lenders.

Several states have found ways to constrain the payday lending industry, allowing it to exist profitably, while reigning in some of its most predatory practices.

States can limit interest rates, require larger strict loan repayment schedules and regulate the amount of loans a person can take out.

Then there's Tennessee.

Advance Financial is Tennessee's top corporate donor

This story comes from a database The Tennessean built tracking every political donation to lawmakers and PACs since 2004 by analyzing publicly available data from the Tennessee Registry of Election Finance.

Among all the donors in Tennessee, Nashville-based lender Advance Financial stands out. The company rarely makes direct contributions to politicians. Instead, it donates money to three PACs under three separate company names, creating layers between itself and the final destination of its donations.

The company makes donations under the names Harpeth Financial Services, AF Admin and Advance Financial. Despite different names, these donors use 100 Oceanside Drive as their address, which is the corporate headquarters of Advance Financial.

Cullen Earnest, a vice president and lobbyist for Advance Financial, also confirmed the connection between the different company names.

Break down these layers and Advance Financial is the single largest corporate contributor to lawmakers over the last 10 years, and the second largest spender when lobbying expenses are factored in. Since 2012, the company has donated over $2 million to lawmakers and spent another $3.4 million lobbying them.

Earnest said it's not unusual for companies in "highly regulated industries to budget for government relations."

"We have 100 plus storefronts in Tennessee from Shelby County to the Tri-Cities," Earnest said. "That would be roughly $5,000 budgeted per store, per year for government relations."

Advance Financial and payday lenders use a familiar playbook. These companies often work together by donating to the same PACs and hiring some of the same lobbyists.

For example, the PAC Tennessee First has received six-figure donations from Advance America, Advance Financial and Community Choice Financial, the parent company of Check into Cash.

The Tennessean sought comment from TitleMax and Community Choice Financial, but did not receive responses.

Payday lenders renewed spending tied to Republicans and a new type of loan

Tracing flexible loans, or "flex" loans as the industry calls them, is one of the ways to better understand the power of high-interest lenders in Tennessee.

There are four main types of high-interest loans allowed under Tennessee law: cash advance (sometimes referred to as "payday") loans; title or pawn loans; thrift loans; and flexible ("flex") loans.

Flex loans are relatively new, becoming legal in 2015. But payday, title and thrift loans have existed legally in the state since the 1990s. Unlike the latter three, flex loans don't require a form of collateral, like a car title or future paycheck.

With a flex loan, lenders can offer up to a $4,000 line of credit, charging a 24% annual interest rate and 0.7% interest rate for every day the loan is active. In total, these loans have an annual interest rate of 279.5%.

"These companies spend a lot of money and time advertising making these loans look attractive," said Marla Williams, a consumer advocacy lawyer with the Legal Aid Society of Middle Tennessee. "Of course they don't tell you how expensive they are.

"No one really understands that until you get into a situation where you aren't able to pay, and the people we see are never able to pay these back."

The loans work much like credit cards, except on an annual credit card the interest rate is around between 15-20%, whereas a flex loan's interest rate is nearly 15 times that.

Stephanie Cole, 27, knows firsthand how attractive flex loans can seem.

"I had some issues with an ex-boyfriend of mine running up a bunch of debt on me, and I had a bunch of bills due," she said. "I turned to Advance Financial because they could deposit me the money right away."

Cole, a Cookeville resident, took out a flex loan to borrow around $325 initially and then another $500.

"I was young and naïve," she said. "I should have, but didn't, understand what I was getting into."

Cole eventually paid back more than $2,500 after interest and fees.

Prior to their approval, flex loans were illegal in Tennessee. Their legalization by state lawmakers coincides with years of increased spending by the industry following the founding of the Consumer Financial Protection Bureau in 2011.

The industry remained relatively quiet in Tennessee politics throughout the 2000s after successful lobbying efforts in the 1990s, but came back in full force around 2012.

"There wasn't a lobby of active resistance to lending reforms when Gov. (Phil) Bredesen was in charge (from 2003 to 2011)," said Andy Spears, who served as a Tennessee Democratic Senate aide from 2003 to 2007 and now runs a Substack newsletter advocating for consumer lending reforms. "When I returned to lobby for some lending reforms 10 years later, that landscape had completely changed."

The payday lending lobby in Tennessee is made of six companies, seven association groups and six political action committees.

Together, these groups ramped up donations right around the 2012 election, which is when state Republicans took supermajority control of Tennessee's House and Senate, as well as controlled the governor's office

Between 2004 and 2012, donations to Tennessee lawmakers from this group averaged around $109,150 per year. Since then, donations have increased fourfold to nearly $437,440 per year, according to The Tennessean's campaign finance database.

Lobbying expenses follow a similar trend. These groups spent on average $579,000 per year before 2012, and then increased that spending to nearly $1.04 million per year after.

"I think the industry didn't want to be visible, but when Republicans took power, that completely changed," Spears said. "Then it became a question of what they could get."

Future Speaker of the House helped pass profitable industry legislation

The process to allow flex loans began with current Tennessee House Speaker Cameron Sexton, R-Crossville, before he assumed the top position.

Sexton – whose campaign account and personal PAC has received nearly $141,200 from high-interest lenders since 2012 – introduced and navigated the passage of the Flexible Credit Act in the state House, which legalized flex loans.

Sexton declined to be interviewed by The Tennessean for this story.

Some representatives, like Rep. Darren Jernigan, D-Nashville, said the legislation made it difficult to understand who would use flex loans.

"I don't think people knew what [Sexton] was proposing," Jernigan said. "He made it sound like another type of loan you could get at a bank and that it was a good thing."

Jernigan was one of only six House members to vote against the Flexible Credit Act.

In reality, flex loans have been a cash cow for the industry.

High-interest lenders now make most of their money on flex loans, instead of payday or title loans.

Since the flex loan law passed, income for high-interest lenders has nearly doubled from $456.1 million to $831.1 million, according to data collected by The Tennessee Department of Financial Institutions.

This is despite a significant drop in income from payday and title loans. Every high-interest lender, no matter the original business model, offers flex loans.

In total, flex loans accounted for 80%, or $669.2 million, of total income for high-interest lenders in the last year tracked by the state.

Lending analyst Kiyadh Burt called flex loans the "ultimate debt trap." Burt works for Hope Policy Institute, a credit union-backed institution studying borrowing in the Memphis area.

"A traditional bank wants you to build credit so it can keep offering you more financial products," Burt said. "They want you to go from a savings account to a car loan to a mortgage."

Flex loans work the opposite way.

"Their goal isn't for you to pay the money back," he said. "Instead, they want you making small payments, never actually paying off your debt, for as long as possible."

Studies show lenders can still exist with consumer protections. Tennessee currently offers few.

There are two polarized sides to the payday lending debate. On one end, consumer advocates argue for an interest rate cap, like in Arkansas.

Arkansas is one of 18 states that have a cap on interest rates of 36% per year or below, keeping these type of lenders out of the state. But, high-interest lenders argue Arkansas residents still need a place to go for emergency cash.

Companies like Advance Financial say their presence plays a necessary part in the financial system.

"Our industry was included in the list of essential services by the federal government during the COVID pandemic," Earnest said. "Non-bank financial services are critical for many Tennesseans to maintain household cash-flow and pay vital utilities."

But some states have found a way to allow payday lenders to operate while reining in some of the industry's most greedy practices.

Take payday lender Advance America, which operates in both Tennessee and Ohio and offers similar lines of credit between the two states. The similarity ends there, though. Advance America offers loans in Ohio with annual interest rates ranging from 90% to 125%, while in Tennessee it offers similar loans with interest rates ranging from 200% to 460%.

"Colorado, Ohio, Virginia and Hawaii have all found ways to let the industry operate profitably, while making loans cost much less and adding consumer safeguards," Horowitz said.

Those four states found potential solutions to several of the problems with high-interest lending, the most troubling being the rollover problem, in which borrowers keep extending loans every two weeks by making minimum payments.

In states without those protections, borrowers can end up paying triple-digit interest rates – but that's also the best way for lenders to maximize profits.

To address the rollover issues with loans, Ohio law states lenders must set up an affordable payment plan that ensures the borrower has a clear plan for paying off the loan.

Tennessee has no such guardrail. Borrowers are required to pay back the total amount of the loan every two weeks, leading to a higher number of rollovers. At 84%, Tennessee has the highest rollover rates in the United States, according to a Consumer Finance and Protection Bureau study.

States have also tried to address problems related to borrowers taking out multiple high-interest loans and exceeding lending limits. Virginia, for instance, created a database tracking every loan issued in the state. Tennessee has a law preventing people from taking out multiple loans exceeding the state's lending dollar cap, but it's hard to track.

"There's no way to know if that law is being followed," Jernigan said. In an effort to better track that information, he and Knoxville Republican Sen. Richard Briggs tried to pass a law creating a similar database to the one in Virginia.

"It's difficult to enforce the provision," Briggs said. "But the industry viewed our bill as hostile, so it didn't pass."

Jernigan and Briggs' 2019 legislation failed to make it out of House and Senate subcommittees, and it's not the only one.

Since 2012, Jernigan and other lawmakers have proposed several regulation bills for high-interest lenders, all of which failed to pass. In contrast, several industry-friendly bills, like those raising lender dollar limits and flex loans, have passed.

This is because the industry tends to focus a portion of its donations on the House and Senate committees in charge of regulating it, as well as leadership in both chambers.

From 2018 to 2022, high-interest lenders gave the 24 members of the House and Senate committees charged with overseeing legislation related to the industry $332,150. This includes mo ney to both parties.

"The key ingredients to having consumer protection and access to credit are lower prices, affordable payments and a reasonable time to repay," Horowitz said. "States like Ohio and Virginia have all three. Tennessee doesn't have any."

Those who don't pay often end up facing payday lenders in court, as the companies try to squeeze every last dollar out of their customers.

Advance Financial has sued over 17,700 people in Nashville for defaulting on payments, including Restrepo, since the introduction of flex loans nearly seven years ago.

Restrepo and many others have paid back their loans multiple times over, but end up in court because they still owe the company money.

"I can't believe something like this is allowed," Restrepo said.

"Their goal isn't for you to pay the money back. Instead, they want you making small payments, never actually paying off your debt, for as long as possible." Kiyadh Burt lending analyst with Hope Policy Institute

"I think the industry didn't want to be visible, but when Republicans took power, that completely changed." Andy Spears advocate for consumer lending reforms