by Adam Friedman, Tennessee Lookout

This article was produced for ProPublica’s Local Reporting Network in partnership with the Tennessee Lookout. Sign up for Dispatches to get stories like this one as soon as they are published.

We are continuing to report on flex loans. Have you been sued by Advance Financial, Harpeth Financial or another flex loan lender? To share your experience, call or text reporter Adam Friedman at 615-249-8509.

Rosita Hansen was working an evening shift at a tubing factory in 2023 when a sheriff’s deputy showed up and handed her a court summons. She was being sued for failing to pay off a loan of $2,050. What confused Hansen was she had already paid a couple thousand more than she borrowed. But now the company, Advance Financial, said she owed more. Between what she’d already paid the company and the lawsuit, Advance stood to receive over $12,500 from Hansen, records show.

Hansen, 57, had taken out the loan in 2021 after her mortgage company threatened to foreclose on her modest three-bedroom house outside Morristown, a small city in East Tennessee. Hansen made enough money to support herself, but after taking in her four grandchildren, she struggled to cover the costs of extra food and school supplies, and she stopped paying her mortgage. That’s when she turned to Advance.

“I was providing for all of them,” Hansen said. “Financially, it was rough.”

Like most borrowers, Hansen could not afford an attorney to handle the suit, but she hoped to work out a payment plan with Advance. When she arrived at the Hamblen County courthouse in Morristown in May 2023, she was directed to a line of half a dozen people waiting to meet with an attorney representing the company.

Across Tennessee, Advance has sued over 110,000 people since 2015, significantly more than any other payday lender, making it one of the largest plaintiffs of any Tennessee-based company collecting debt. In Hansen’s Appalachian county of 66,000, where nearly half the households make less than $50,000, the company has filed one case per every 32 residents over that time, the Tennessee Lookout and ProPublica found.

Advance began filing thousands of lawsuits soon after Tennessee lawmakers approved the Flex Loan, a product pioneered by Advance in Tennessee. The loan’s $4,000 cap is nine times higher than the limit for most payday loans, and the company charges the equivalent of a 279.5% annual interest rate. Before Flex Loans became legal in 2015, payday lenders could only lend $425, and the borrower could never be required to pay back more than $500. Since then, those protections have been eliminated and thousands of borrowers have been defaulting.

Flex Loans only stop growing when they’re completely paid off, when a flex lender declares the loan is in default or when it sues the borrower. If the loans do end up in court, the law allows lenders to recoup attorneys fees — which can’t be done with payday loans — a practice that can add up to a third of the loan amount. Court judgments against customers are often thousands of dollars, with some exceeding $10,000, records show. About 40% of all cases end up with a wage garnishment, court records show.

The consequences of Flex Loans were predicted when the Tennessee legislature legalized them 10 years ago, and the Consumer Financial Protection Bureau wanted to regulate products like Flex Loans when Congress created the agency in 2011. The Trump administration’s efforts to dismantle the CFPB are currently being reviewed by the courts.

Advance has argued that the new product would help consumers by offering them loans that are technically cheaper than a payday loan. It downplayed concerns from consumer advocates that these high-interest loans targeted and trapped low-income borrowers in debt they could never pay off. The company’s leaders made their case just as federal regulators planned to crack down on other Tennessee lenders for making different high-interest loans to people they knew could not pay them back.

After just a few years, evidence started mounting that the loans were exacting a high toll on low-income borrowers while generating huge profits for lenders. Since then, the Flex Loan has buried tens of thousands of Tennesseans such as Hansen in a deep financial hole.

Gabe Kravitz, a consumer finance researcher at The Pew Charitable Trusts, said loans above $1,000 paired with triple-digit interest rates are hard to pay off.

“It gets very expensive very quickly,” he said.

Only a few other states have approved products similar to the Flex Loan but, unlike Tennessee, when other states saw problems with the loans, they acted to rein them in.

Virginia allowed banks to make line-of-credit loans but had never seen the need to cap interest rates as banks competed for customers. But soon after Advance showed up, regulators noticed the company filing thousands of lawsuits. The state attorney general’s office investigated the company for deceptive practices in 2020, ultimately labeling the company as “predatory” and helping to pass legislation to shut down Flex Loan-like products in the state. Advance declined to answer a question about the Virginia attorney........

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