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Paternalism or protection?

A Times Editorial
Published April 19, 2006

Six years ago, the Florida Legislature struck a blow for the working poor by capping the interest allowed on car title loans. Now state Rep. Chris Smith, a Fort Lauderdale Democrat, wants to invite the predatory lenders back to the state by increasing the interest they can charge by fourfold - to a maximum of 132 percent over six months.

Smith, who sometimes champions causes of the under class, makes an odd argument for encouraging the risky loans. "We've got to stop pushing paternalistic views of, "We're not even going to give you this option because we know better than you,' " he said.

So consumer protection is paternalistic to Smith. That would explain why he sponsored a bill (H.B. 1109) that even his hometown police department warned against.

Title loan companies encourage desperate people with poor credit to put up their car title as collateral for a quick loan that, under Smith's bill, could charge as much as 22 percent interest a month for six months (equivalent to a 264 percent annual rate). In 2000, after a Pulitzer Prize-winning series of editorials in the Orlando Sentinel exposed the sleazy business, the Legislature changed the law, capping interest on such loans at a maximum 30 percent annually. Title loan companies responded by leaving the state, an outcome that Smith and a few others now see as unfortunate.

Here is what the Fort Lauderdale police have to say about the old law. The department was flooded with calls from people whose cars were taken without warning by the lenders. "We had to be the ones to tell them, "Sorry, but in the state of Florida this is legal' " Detective Jack Gee told lawmakers. "Why are we wanting to charge people, who can't afford it to begin with, more money?"

Good question. People almost always have a better choice than a car title loan. The Florida Attorney General's office recommends that consumers consider other options first, such as working out a payment plan with creditors, contacting a credit counseling service, borrowing from family members or seeking help through a charity. Otherwise, the borrowers risk losing their cars, which could be necessary for work, and their problems only multiply.

Rep. Smith may want the car title loan companies back, but we say good riddance. Let's hope the fact that the bill passed out of committee by only one vote is a sign that it will be rejected by those who remember history.

[Last modified April 19, 2006, 01:58:13]

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