The payday lending lobby contributed hundreds of thousands of dollars to Tennessee lawmakers as the industry pushed for a new type of loan in the state, NewsChannel 5 Investigates discovered.
The Flexible Credit Act created flex loans and legalized their 279% annual percentage rate. It sailed through the General Assembly in 2014, passing unanimously in the state Senate and with bipartisan support in the House.
But our investigation discovered that few lawmakers questioned the new product or the high interest rate.
Rep. Mike Stewart, D-Nashville, was one of the only lawmakers to publicly ask about details of the bill.
"Do we have any idea as we're passing this bill today, which is creating an entirely new financial product, what it's going to cost the average guy on the street?" Stewart asked on the House floor in 2014.
Stewart continued to press the bill's sponsor Rep. Cameron Sexton, R-Crossville.
"Well what is the APR?" Stewart asked. "I'm sure we know it. What is it? What is the answer? What is it?"
Sexton responded, "The highest interest rate that could be charged is 24%."
His answer failed include the daily fees lenders could charge.
NewsChannel 5 Investigates asked Sexton about the exchange on the House floor in 2014: "Why weren't you able to just say 'this is what the APR is'?"
Sexton's response: "I don't think anybody was trying to dodge the question. What happens is you want to make sure the information he's provided is accurate."
The number 279 did not appear anywhere in the actual bill which allowed lenders to charge a fee of .7% for each day the loan is unpaid.
NewsChannel 5 Investigates asked Sexton, "So you'd have to do some real math to figure out its 279%."
"I don't know about real math, but it would take a little work to come up with 278%," he replied.
After a break, Sexton told lawmakers the actual rate, but Stewart was one of the only lawmakers to vote against the bill.
"It was important for me to highlight my concern about the high interest rate involved in these kinds of products," Stewart said.
NewsChannel 5 Investigates asked Sexton if he thought it was a good product?
"I think it's a better product than what currently some loans are," he responded. "It's up to the consumer to decide what exactly is a better product for them."
The legislation came about just as the federal government was considering a crackdown on payday loans.
Tennessee was the first state to specifically authorize flex loans and allow the fees and interest associated with them.
NewsChannel 5 Investigates asked Sexton, "Do you think consumers benefited most or the industry benefited most?
Sexton said, "I would say it would be hard to answer. You'll have to talk to each individual person."
But when we asked who wanted Sexton to sponsor the bill, he was not sure.
"I can't remember the exact association's name. I can just say it's in the lending industry, but I just don't know what association," Sexton said.
Sexton presented the bill to several House committees.
But committee members had few questions.
On the Senate side, the primary person to testify about the bill was a lobbyist for a payday loan company.
Few industries contribute as much money to Tennessee lawmakers as the payday lending lobby.
NewsChannel 5 Investigates asked Sexton, "How powerful is that lobby around the halls of the legislature?"
"I really don't know how to answer that," he said, "because I would say there is no power lobby in the legislature."
Five political action committees representing payday lenders across the state doled out more than $400,000 in contributions to Tennessee lawmakers in the months immediately before and after the bill passed.
NewsChannel 5 Investigates asked, "Does that money influence you?"
Sexton responded, "I don't think it influences me. I can't speak for other lawmakers."
The Crossville Republican himself received $6,000 from payday lending PACs immediately before sponsoring the bill and right after it passed.
He also received more than $2,000 from payday loan lobbyists to help with a fundraiser.
NewsChannel 5 Investigates asked, "If there is some appearance, why take that money?"
Sexton responded, "We can take that money first of all, and that's not the only money I take. I take money from home. I do fundraisers at home. We do everything within the law."
Critics Call 279% Loan A 'Debt Trap'