Skip to Content

Title Pledge Lender Frequently Asked Questions

Amendments to the Tennessee Title Pledge Act, T.C.A. § 45-15-101 et seq. were signed into law on June 17, 2005. These changes have prompted many questions from the title pledge industry. For your information, please refer to the following group of answers to the first set of frequently asked questions. Additional questions and answers will be posted to this site periodically. Therefore, please continue to check for updates.

RECORDKEEPING AND OPERATIONAL ISSUES

INTEREST, FEES AND OTHER CHARGES

REQUIRED PRINCIPAL REDUCTION

GRACE PERIOD, LATE PAYMENTS AND DEFAULTS

REPOSSESSION AND SALE OF VEHICLE

RECORDKEEPING AND OPERATIONAL ISSUES

1.  Q: If I retain the title pledge agreement with all of the required information is that adequate for record-keeping purposes?

A:
No. A record of all loans must be kept on a consolidated “Title Pledge Log” and must be made available during on-site examinations. A copy of the form “Title Pledge Log” is available for download and printing from the Department’s website.


2.  Q: Will there be examples of Title logs on your website?

A:
Yes. The form “Title Pledge Log” is posted on the Department website. 
Click here for Title log example.


3.  Q: Do I have to initiate a new Title Pledge Agreement every month when the agreement matures?

A:
No; however, 45-15-113(a) of the Act sets forth the term of the title pledge agreement as 30-days; however, “such agreements may provide for renewals for additional 30-day periods, which may occur automatically,” unless one of four (things) has occurred as enumerated under 45-15-113(a) (1) through (4). The loan agreement must specify that automatic renewals will occur if that is the intent of the agreement. Additionally certain disclosures must be provided the pledgor with every renewal as specified in 45-15-113(b). The title pledge lender must substantiate that the applicable disclosures were provided and document the loan file accordingly.


4.  Q: What if we operate a Deferred Presentment office and Title Pledge office together? Do we have to close at
6pm or can we stay open later and just do Deferred Presentment loans?

A:
The hours of operation provided for under 45-15-115(8) of the Act did not change with the amendments, and are specific to title pledge; therefore, have no bearing on other business operations that may be conducted from the same office location.


5.  Q: Can we do two or more loans for a customer if they use separate titles? (Different vehicles)?

A:
Yes. Section 12 of the amendments 45-15-115(a)(3) specifies that a loan against any single vehicle title is limited (in the aggregate) to $2500.00; therefore, it is permissible to loan up to $2500.00 to serve the same customer against a separate (different) vehicle title.


6.  Q: If a customer paid $100 off on $300 loan, then needed that $100 back at a later date, does it have to be 2 separate loans due at 2 separate times or can we combine back to a $300 original loan?

A:
Section (12)(a)(16) specifically prohibits the consolidation of title pledge agreements. However, a customer may have more than one loan provided the following conditions are met: 1) each loan is made separately; 2) a 5% principal reduction is made at the 3rd and subsequent renewal for each loan; and 3) loans are made to the same borrower, on the same title, from the same lender at the same location and combination of all outstanding loan balances shall not exceed $2,500.


7.  Q: Must the customer satisfy the first loan before taking out a second one on the same auto?

A:
No. A customer may have more than one loan provided the following conditions are met: 1) each loan is made separately; 2) a 5% principal reduction is made at the 3rd and subsequent renewal for each loan; and 3) loans are made to the same borrower, on the same title, from the same lender at the same location and combination of all outstanding loan balances shall not exceed $2,500.


8.  Q: What happens if we do a second loan on the same title and the customer pays on time on one loan but defaults on the second loan?

A:
Each loan, whether against the same title or another title, is to be considered independent of any other loan; therefore, (in the example given) the lender would have the option to repossess the vehicle due to the default on the second loan against the same title.


9.  Q: How do we reimburse a customer surplus proceeds from a sale if we are unable to locate the customer, how do we handle this situation?

A:
You may report the unclaimed property to the Unclaimed Property Division (“UPD”) of the Treasury Department at P.O. Box 198649, Nashville, TN 37219-8649, telephone number (615) 253-5362.

The Commissioner may promulgate rules regarding distribution of surplus funds to pledgors.


10. Q: Do you have to go to DMV to put a second lien on the same title but on a second loan?

A:
No, because the lien is already perfected. A vehicle title is not considered encumbered if multiple loans are made to the same pledgor if the following conditions are met: 1) Each loan is made separately; 2) A 5% principal reduction is made at the third and subsequent renewal for each loan; and 3) Loans are made to the same borrower, on the same title, from the same lender at the same location and the combination of all outstanding loan balances does not exceed $2,500.00.


11. Q: Why are Title Pledge lenders being treated different from brokers, banks, etc. (i.e., they can add interest and other charges to payments)?

A:
Under current law, Tenn. Code Ann. § 45-15-111(a) provides that title pledge lenders may charge a customary fee of up to 1/5 of the original principal amount to cover “all…expenses” of the lender, except for the actual cost of repossession under Tenn. Code Ann. § 45-15-111(b). Banks, mortgage brokers, and others may not charge a fee that amounts to up to 20% of the original principal, in addition to being restricted in the rates of interest charged to borrowers.


12. Q: We have had problems securing license through the County Clerk Office, if we do not have a license, are we grandfathered through
December 31, 2005 if an application is filed with TDFI?

A:
No. Section 4(a) of the Amendments provides that no person shall engage in the business of title pledge lending without having first obtained a license. A separate license shall be required for each location from which business is conducted. Any person engaged in the business of title pledge lending on November 1, 2005 under a license issued by the county clerk, may continue to engage in the business without a license issued by the Commissioner until the commissioner has acted upon the application for a license if the application is filed by December 31, 2005.

Lenders not licensed with the county clerk should submit application to the Department as soon as possible but suspend operations beginning November 1, 2005 until such time as the Commissioner acts upon the license application.


13. Q: Are pawnshops covered by this law?

A:
No. The Act regulates title pledge lenders only.


14. Q: Do separate records mean that we have to have a separate computer system for title pledge loans?

A:
No. The required Title Pledge Loan log and repossession log may be maintained manually. Examples of both the loan and repossession log can be found on the Department website. Additionally, the Department will issue rules further clarifying our record-keeping requirements.


15. Q: If we have a Deferred Presentment or Check Cashing business, do we have to keep separate customer files for title pledge customers?

A:
Yes. A separate customer file must be maintained for each title pledge customer. The Department will issue rules further clarifying our record-keeping requirements.


16. Q: Can we pass on the cost of recording the lien to the customer if they exercise their one-day right of rescission after we have filed the lien?

A:
No. Under current law, Tenn. Code Ann. § 45-15-111(a) provides that title pledge lenders may charge a customary fee of up to 1/5 of the original principal amount to cover “all…expenses” of the lender, except for the actual cost of repossession under Tenn. Code Ann. § 45-15-111(b).


17.  Q: The law requires that we have possession of the customer title, but in
Kentucky the title is returned to the customer. Can we still do business with Kentucky customers?

A
: Yes. We are aware that the Kentucky Division of Motor Vehicle Licensing ("DMV") makes available to lenders a four-part form called the Title Lien Statement ("TLS") which the lender completes. The lender completes the TLS which is signed and dated by both the borrower and the lender, the lender retains the "pink" copy of the form with the loan agreement, provides the customer a copy, and submits the remaining two parts (of the TLS) to DMV along with the certificate of title. Upon receipt, DMV records the lien and notes the filing number on the TLS and returns the "lienholder acknowledgment" (yellow) copy to the lender after the lien is recorded. DMV returns the Certificate Of Title ("COT") to the borrower after the lien is recorded.
For examination purposes, the lender's loan file for Kentucky customers should contain the following in order of preference:

  1. the original COT; however, we recognize that the customer is under no obligation to return the COT to the lender after the lien is noted by DMV. Therefore, as an acceptable alternative
  2. the "yellow" copy of the TLS (lienholder acknowledgment) with the filing number assigned and noted by DMV.
  3. during the approximate three week interim, until the "yellow" copy (lienholder acknowledgment) is returned to the lender by DMV, the "pink" copy of the TLS will be acceptable.
  4. for release of lien, lenders must write "Full Release" on the "pink" copy of the TLS (Dealer/Secured Party copy) and return to customer. The lender must retain a copy of this form in the customers file.

INTEREST, FEES AND OTHER CHARGES

18. Q: Is the allowed interest rate a flat 22% or $20 plus 2%?

A: Section 45-15-111(a) of the Act sets forth the interest and fees that may be charged. This section was not changed by the amendments to the Act. Section 45-15-111(a) specifies that the title pledge lender may contract for and receive an effective rate of interest not to exceed 2% per month; additionally, the lender may charge a fee equal to no more than 1/5 of the original principal amount (or unpaid balance in the case of renewals). There is no mention of either 22% or $20.00 in the Act or the amendments thereto.


19. Q: Can I charge less than the stated rate?

A:
Section 45-15-111(a) of the Act sets forth the rate of interest and the fee that may be charged to the pledgor under the terms of the title pledge agreement. If a title pledge lender elects to charge less than the interest and/or fee permitted under the Act, that is a business decision left to the discretion of the lender.


20. Q: Can a lender charge a pre-payment penalty if the pledgor pays off the loan early?

A:
No. A so-called “pre-payment penalty” may not be assessed a pledgor. If, for example, the pledgor pays the full amount owed under the contract (accrued but unpaid interest, fees, and principal) at some time prior to the payment due date or maturity date of the contract, no additional charges (in the form of “pre-payment penalty” or otherwise) may be assessed. Tenn. Code Ann. § 45-15-115.


21. Q: Can I recover storage costs if the repo person repossesses the vehicle and charges storage fees while he holds the vehicle for the twenty days?

A:
Section 45-15-111(b) states that a Title pledge lender may assess and collect, as reimbursement, a repossession charge not to exceed the actual amount charged by any company or companies, attorney or attorneys and/or contractor or contractors to repossess the titled personal property and deliver such titled personal property to the storage facility of the title pledge lender. The Department views any storage costs and mechanics liens prior to repossession as included in the actual repossession charge, provided that documentation in support of actual costs is maintained by the lender.

All other storage and repair costs incurred post repossession are covered under Section 45-15-111(a) which states in part that the customary fee of 1/5 of outstanding principal includes all other costs of doing business and the assumption of risk.


22. Q: Secondly, interest and fees are collected on the day the loan is made. If a customer returns in 15 days and pays off the loan, is a refund required?

A:
No. The title pledge interest and fee allowed under 45-15-111(a) of this section shall be deemed earned, due and owing as of the date of the title pledge agreement or property pledge agreement.


REQUIRED PRINCIPAL REDUCTION

23. Q: Does the “prime” (principal) reduction apply to present loans?

A:
The principal reduction requirement set forth in Section 10 of the amendments to the Act provides for the manner in which principal reduction is to be applied. The principal reduction requirement becomes effective November 1, 2005. For title pledge agreements entered into November 1, 2005 and after, the principal reduction requirement is to be applied at the third (and subsequent) renewal(s). If a contract was entered into prior to November 1, 2005, the Department will consider the month of November to represent the initial contract month for purposes of principal reduction; therefore, (in this example) February 2006 is the first month during which principal reduction would be applicable.


GRACE PERIOD, LATE PAYMENTS AND DEFAULTS

24. Q: Can a title pledge lender sell the past due loan to a repo person?

A:
No. Section 4, 45-15-105(a) of the amendments specify that “no person shall engage in the business of title pledge lending without having first obtained a license. This section of the Act is interpreted to include collecting or otherwise servicing title pledge loans. Section 5(h) of the Act provides that the license is not transferable or assignable.


25. Q: If the contract is in default at the expiration date, can I charge any additional interest and fees?

A:
No. If the title pledge agreement is in default, the only recourse available to the title pledge lender is repossession of the titled vehicle. Tenn. Code Ann. § 45-15-115(2).


26. Q: When a payment is due on the 1st and the customer makes a payment on the 21st, is the new payment due date the 21st?

A:
No. In a scenario where the original payment due date is the first of the month and the customer pays late, the contract will continue to renew on the same day of each subsequent thirty-day period. The title pledge interest and fee allowed under 45-15-111(a) of this section shall be deemed earned, due and owing as of the date of the title pledge agreement or property pledge agreement and a like sum shall be deemed earned, due and owing on the same day of each subsequent thirty-day period.


REPOSSESSION AND
SALE OF VEHICLE

27. Q: What options do I have if prior to repossession of a vehicle it is determined that the vehicle has no value?

A:
Under the Act, if the pledgor defaults on the loan, recourse is limited to repossession and sale of the vehicle. If the lender determines that the vehicle has no value he/she may repossess and sell for salvage. If the lender chooses, for whatever reason, not to repossess the vehicle, he/she has the option to charge off the balance owing. Refer to Section 11 of the amendments 45-15-114. et seq and 45-15-115 (a) (2) which detail the recourse available to the lender under the Act. The Department cannot offer advice regarding recourse outside of the recourse that is available under the Title Pledge Act.


28. Q: What is the lender’s recourse if the vehicle is destroyed or if another lien is put on the vehicle?

A:
Please see the answer to question #29 above.


29. Q: When we have repossessed the car and the customer has stolen the radio, backseat, tires and tire jack, etc. can we add the price of replacing these items to our cost of the sale?

A:
No. Section 45-15-111(b) states that a Title pledge lender may assess and collect, as reimbursement, a repossession charge not to exceed the actual amount charged by any company or companies, attorney or attorneys and/or contractor or contractors to repossess the titled personal property and deliver such titled personal property to the storage facility of the title pledge lender. The Act provides that title pledge lenders may assess and collect, as reimbursement, a repossession charge not to exceed the actual amount charged by any company, contractor to repossess the titled personal property. This may include costs such as a mechanic’s lien on a vehicle, impoundment and storage costs if the vehicle is seized by a third-party.

All other costs incurred post repossession are covered under Section 45-15-111(a) which states in part that the customary fee of 1/5 of outstanding principal includes all other costs of doing business and the assumption of risk.


30. Q: After a car is towed to a wrecker service, our customer is not going to let us know where that vehicle is, and the wrecker service is not going to waive the storage? Can we recover such fees from the customer?

A:
Yes. Please see the Answer to # 31 above.


31. Q: If the car is not sold during the sixty (60) day period, what other alternatives are available to me for disposition?

A:
The amendments to the Act contained in 2005 Tenn. Pub. Acts, ch. 440 (“Amendments”), do not provide for any additional alternatives other than sale within 60 days. Section 11(b)(2).

Thus, after the 60 days, the lender may dispose of the vehicle in whatever manner it chooses, at its own cost. (i.e. salvage, donation, etc.)


32. Q: Does title pledge license give us the right to sell these vehicles without other restrictions?

A:
No. The Amendments provide that the sale of the vehicle must be done in a commercially reasonable manner, as provided under Tenn. Code Ann. Title 47, Chapter 9, Part 6. Section 10(b)(2). The sale must commence within 60 days of the expiration of the 20 day holding period following the pledgor’s default of the title pledge agreement.

The Amendments do not relieve the title pledge lender from complying with any other law, rule or regulation that is not provided under Title 45.


33. Q: Are title pledge lenders required by the Commissioner to obtain a motor vehicle dealer license for the purpose of selling motor vehicles that have been repossessed?

A:
No. Based on the language contained in Tenn. Code Ann. § 55-17-102(17)(e), which states: “(17) ‘Motor vehicle dealer’ and ‘motor vehicle salesperson’ do not include the following: (e) All banks, finance companies, loan companies, insurance companies, auto body shops or garages that have not obtained a motor vehicle for the purpose of resale, selling or offering to sell used motor vehicles directly to the public without the intervention of any other person, when such sales are merely incidental to their primary business activities.” This statute would apply to title pledge lenders as long as the sales conducted are incidental to their primary business of title loans. Consequently, no motor vehicle dealer license would be required to conduct such sales.

34. Q: If the car is repossessed and held for 20 days, where must the car be kept and /or placed in order to sell?

A:
Under current law, the title pledge lender is required to retain possession of the vehicle during the 20 day holding period. Tenn. Code Ann. § 45-15-114. The Amendments in Section 11 do not change this requirement.

The requirements for sale in Section 11 do not specify a location for sale provided that the sale is conducted in a commercially reasonable manner.


35. Q: Since we are lien holders on these cars can we not sell them without being required to have any additional license?

A:
The Amendments to the Act do not provide any exemption from any other law, rule or regulation regarding licenses.


36. Q: Since I can not sue for any types of fees and/or deficiencies, what other options are available for recouping losses?

A:
If a pledgor has defaulted on an agreement, the lender’s only recourse is repossession of the vehicle. Tenn. Code Ann. § 45-15-115(2). However, the lender has the right to recover the actual amount charged by any company, attorney and/or contractors to repossess the vehicle and deliver it to the storage facility of the lender. Tenn. Code Ann. § 45-15-111(b). The Department views any storage costs and mechanics liens prior to repossession as included in the actual repossession charge, provided that documentation in support of actual costs is maintained by the lender.

37. Q: If we hire a repo company and they repo a vehicle for us and the repo company holds the vehicle at their place of business in a storage yard and they charge us storage, can we charge the customer storage?

A:
No. Section 45-15-111(b) states that a Title pledge lender may assess and collect, as reimbursement, a repossession charge not to exceed the actual amount charged by any company or companies, attorney or attorneys and/or contractor or contractors to repossess the titled personal property and deliver such titled personal property to the storage facility of the title pledge lender. The Department views any storage costs and mechanics liens prior to repossession as included in the actual repossession charge, provided that documentation in support of actual costs is maintained by the lender.

All other storage and repair costs incurred post repossession are covered under Section 45-15-111(a) which states in part that the customary fee of 1/5 of outstanding principal includes all other costs of doing business and the assumption of risk.


38. Q: What does the state consider to be a fair repo charge?

A:
The State does not determine what a “fair” repossession charge may be in the industry. Section 45-15-111(b) states that a Title pledge lender may assess and collect, as reimbursement, a repossession charge not to exceed the actual amount charged by any company or companies, attorney or attorneys and/or contractor or contractors to repossess the titled person property and deliver such titled personal property to the storage facility of the title pledge lender. The title pledge lender must be able to demonstrate to examiners that the repossession charge consists of the actual amount charged by third parties to repossess the vehicle.


39. Q: Can we add our internal cost related to repossess a vehicle to the transaction as repo cost when it is repossessed?

A:
No. Section 45-15-111(b) states that a Title pledge lender may assess and collect, as reimbursement, a repossession charge not to exceed the actual amount charged by any company or companies, attorney or attorneys and/or contractor or contractors to repossess the titled personal property and deliver such titled personal property to the storage facility of the title pledge lender. The Department views any storage costs and mechanics liens prior to repossession as included in the actual repossession charge, provided that documentation in support of actual costs is maintained by the lender.


40. Q: What if you cannot locate the vehicle? Will we have civil recourse?

A:
Under the Act, if the pledgor defaults on the loan, recourse is limited to repossession and sale of the vehicle. If the lender determines that the vehicle has no value he/she may repossess and sell for salvage. If the lender chooses, for whatever reason, not to repossess the vehicle, he/she has the option to charge off the balance owed. Refer to Section 11 of the amendments 45-15-114. et seq and 45-15-115 (a) (2) which detail the recourse available to the lender under the Act.


41. Q: Are we required to repossess by law?

A:
No.


42. Q: What does my customer have to pay to redeem a vehicle if I finally locate it six months later?

A:
Pursuant to Tenn. Code Ann. § 45-13-114(a), once the vehicle is repossessed, the pledgor has twenty days to redeem the vehicle by paying the interest, fees, principal and any repossession charges owed on the vehicle.