It’s easy to get caught up in the excitement of the holiday season. Many of us find ourselves spending a little more on a gift than we planned to, or buying something special for a holiday meal, or maybe throwing in a little something for ourselves when we place an online order.

 

All of that extra spending adds up. According to a survey by the National Retail Federation, consumer spending during the winter holidays is expected to reach an average of $902 per person this year, about $16 higher than the previous record from 2019.

 

For many Americans who live between paychecks, the only way to cover these extra holiday costs is to take on debt — which sometimes means running up a balance on a credit card and slowly paying it back in the new year (along with interest tied to an APR rate that, for people with low credit scores, can average around 28%).

 

But for those who have maxed out their credit cards or who don’t qualify, there are limited options for getting cash quickly — and those that exist can easily wreak havoc on a person’s financial life.

 

Tennessee is one of only 27 states that have fully legalized so-called “payday” loans — a controversial form of high-cost lending that arguably stacks the deck against low-income people, trapping them in a cycle of debt that it can be nearly impossible to extract themselves from. While several other states have banned the practice, Tennessee is one of the most lenient states in the country when it comes to regulating high-cost loans.

 

Across Tennessee, flex loans are the most common form of high-cost loans, essentially giving borrowers an open line of credit that’s usually in the thousands of dollars. Even if a person doesn’t need that much, some Tennessee lenders are shameless in repeatedly tempting them with offers to come back and borrow more.

 

Lenders like to advertise that flex loans have interest rates similar to credit cards, which is technically true. What they don’t tell you is that borrowers are also charged an additional “customary fee” that, according to state law, can be up to 255% per year. Also unlike credit cards, borrowers are sometimes asked to offer something of value as collateral in case they’re unable to pay back their loan — such as the title to their car.

 

We recently worked with a client who borrowed around $1,500 in December 2023 to help cover holiday expenses, signing an agreement that gave his lender the title to his car if he defaulted on his loan. He made his first payment in January, then returned in February to pay off his balance using his tax refund, which he had recently received. To his surprise, the lender told him his remaining balance was smaller than expected — around $800 — so our client paid it off and received the title to his car back, along with a receipt saying his account was paid in full.

 

Several months later, our client found that his car had been unexpectedly repossessed at the direction of the loan company. When he inquired, he was told that the loan he had paid off in February was a completely different loan that he had gotten 15 years earlier from the same company — for which the statute of limitations had long since run out.

 

While this situation could charitably be chalked up to human error, at Legal Aid Society, we see many other instances of lenders behaving badly. A common issue we deal with is loan companies claiming a person owes them a significantly higher amount than they really do — often caused by the lender continuing to charge the 255% customary fee even after the borrower defaults, which is legally prohibited. Other clients report harassment by debt collectors, who call at extremely late hours or threaten a borrower with arrest, which is an empty threat.

 

If you’re contemplating borrowing money from a high-cost lender to cover holiday expenses, we strongly urge you not to do so. If you’ve already borrowed money and have become overwhelmed by debt, we at Legal Aid Society can help protect certain types of personal property from being garnished, such as cars or bank accounts, if you are sued. Following a judgement, we can also work with lenders to negotiate repayment agreements that allow clients to dig themselves back out of debt. 

How Legal Aid Society can help - If you’ve lost Medicare Savings Program benefits that you should have received, or you’re having trouble determining where you stand, Legal Aid Society offers free legal services for low-income residents across Middle Tennessee. If you think you may qualify, call the Legal Aid Society in Murfreesboro at 615-890-0905, or their toll free number at 800-238-1443.

Again, you can also visit las.org to see if you might qualify for our free legal services.