December 9, 2015
Fred Schulte
The Center for Public Integrity
After years of financial ups and downs, Gloria Whitaker needed some quick cash to help keep a roof over her head.
After years of financial ups and downs, Gloria Whitaker needed some quick cash to help keep a roof over her head.
So she and her son, Devon, went to a TitleBucks store in Las Vegas and took out a $2,000 loan, pledging his gold 2002 Ford F-150 truck as collateral.
Whitaker, 66, said nobody verified that she, or her jobless son, could repay the loan, which carried interest of 121.545%. When she paid off the loan, she said, the company didn’t give back the title to the truck. Instead, employees talked her into borrowing $2,000 more, she said.
“I had a hardship,” Whitaker said. “I was between a rock and a hard place,” which included a family illness.
In October, Whitaker filed a complaint with state regulators, who have accused TitleMax, which owns TitleBucks, of violating state lending laws and estimated that the company overcharged Nevada customers more than 6,000 times this year by nearly $8 million.
“Our position is that they are a bad actor,” said George Burns, who heads the Nevada Financial Institutions Division. “We want them to conduct their business legally and not be taking advantage of the public.”
Yet title lenders appear to be expanding. TitleMax and two other major lending companies — all three based in Georgia — run about 3,000 stores under a slew of eye-catching brand names, such as LoanMax and Fast Auto Loans. None would comment for this article.
But the title lenders have fended off tighter state oversight of their operations behind millions of dollars in campaign contributions, aggressive challenges to regulators who seek to rein them in and tightly written loan contracts that leave aggrieved borrowers with little legal recourse, an investigation by the Center for Public Integrity found.
Among the findings:
■ Three major title lenders, their owners or key executives, pumped just over $9 million into state political campaigns during the past decade, as they sought to block reform legislation. Since 2011, about 150 bills to cap interest rates or crack down on lending abuses died in 20 state legislatures.
In Virginia, where the three big lenders spread about $1.3 million in campaign cash in the past decade, five reform bills died this year. In Tennessee, more than two dozen similar measures have failed in the past five years.
■ State banking and consumer regulators mostly levy fines or other civil penalties that don’t appear to halt lending abuses. Illinois officials hit TitleMax stores with about 90 fines for more than $527,000 in the past 18 months. Some state citations accused TitleMax and other lenders of improperly writing loans with repayment terms that sucked up more than half the borrower’s monthly income.
■ Title loan contracts obligate borrowers to settle disputes through confidential arbitration hearings. This has stymied dozens of lawsuits accusing lenders of a range of deceptive tactics.
Arbitration is popular with customer finance businesses. The federal Consumer Financial Protection Bureau in October announced it was considering a ban on arbitration clauses, arguing they amount to a “free pass” that allows companies “to avoid accountability to their customers.”
It’s legal in about half the states to pledge a car title as collateral for short-term loans of a few hundred dollars or more. Many of these states allow lenders to tack on interest that can top 300%, and to seize and sell off cars when borrowers fail to pay.
Title lenders insist they provide a vital financial service to people who can’t take out a bank loan or get credit when they need fast cash.
Consumer advocates scoff at this notion. They argue title lenders prey on low-income people by putting their cars, often their biggest or sole asset, at risk. Title lenders in four states — New Mexico, Missouri, Tennessee and Virginia — repossessed at least 92,000 cars in the past two years, according to state records.
“The person who has paid off their car is starting to move up the ladder a little bit,” said Jay Speer, executive director of the Poverty Law Center in Richmond. Virginia is home to nearly 500 title-lending shops.
“When you get one of these loans, you are knocked right back down and in bad shape,” he said.
Whitaker, a retiree, has a history of financial instability, including bankruptcies. She also admits her “biggest mistake” was not carefully reading the loan contract’s fine print.
Whitaker, in her complaint to the state, said her income was $1,055 a month, mostly from Social Security. Yet the first loan she took out in late 2013 obligated her to pay $265 a month.
She and her son, now 30, later took out a second $2,000 loan, even though he had no income. They signed an affidavit stating they could handle seven monthly payments of $410.68, for a total of $2,874.71.
“We did not have the ability to repay the loans, and TitleBucks knew that,” she wrote in her complaint.
Venicia Considine, a lawyer at the Legal Aid Center of Southern Nevada, who assisted the Whitaker family, said many borrowers roll over their loans to keep the repo man at bay.
Title lenders, she said, “bleed” people “until there is nothing left. Then they get their car.”
Devon Whitaker didn’t lose his truck. TitleMax agreed in late November to accept a payment of $580 and free up the title to the truck, Considine said.
TitleMax, in a 2013 Securities and Exchange Commission filing, reported $577.2 million in loans outstanding as of December 2012. The Savannah, Ga.-based lender says it fills a void for growing legions of people banks won’t touch.
Unlike banks, it doesn’t check a borrower’s credit before offering a loan or report defaults to credit bureaus. The company argues that it seizes cars only as a “last resort,” not before “we have first exhausted all options for repayment,” according to the SEC filing.
TitleMax promises cash “in as little as 30 minutes.” The front window of a store in Charlottesville, Va., shouts out “instant approval” and “bankruptcy OK.”
A little more than 2 miles away, competitor LoanMax boasts: “We say yes.” A hand-scrawled message on the front window reads: “Refer a friend. Get $100.”
How quickly the title loan market is growing is difficult to assess. But in Illinois, where three of four borrowers earned $30,000 or less per year, title loans nearly doubled between 2009 and 2013, according to the Illinois Department of Financial and Professional Regulation. California officials in July reported that title loans had more than doubled in the past three years.
Some states, such as Wisconsin and Tennessee, keep a range of title loan records secret. In Virginia, the title lenders are fighting a request from the Center for Public Integrity for the 2014 annual reports they submitted to state banking regulators.
The lenders have fought off states’ efforts to put restrictions on the loans while giving heavily to lawmakers’ campaigns. Together the title lenders made $9.1 million in state campaign contributions during the past decade, according to an analysis of data collected by the National Institute on Money inState Politics.
Roderick Aycox, of Alpharetta, Ga., with his companies and relatives, gave nearly $4 million. They do business as Select Management Resources, LoanMax, Midwest Title Loans and other brands.
TitleMax gave nearly $3.8 million, including donations from its executives and its president, Tracy Young.
Robert I. Reich, CEO of Community Loans of America in Atlanta, which has listed more than 100 subsidiaries such as Fast Auto Loans, and his firms gave just over $1.3 million.
The donations “without a doubt” doomed bills lenders opposed, said New Mexico Democratic state Sen. William Soules. He cited as an example an unsuccessful bill he filed in December 2014 to cap interest at 36%.
“There’s big money being made off the very poorest and most vulnerable people in our state,” Soules said.
A similar bill offered earlier this year by Democratic Missouri Rep. Tracy McCreery never got a hearing. She also blamed campaign donations from lenders to politicians of both parties that totaled $200,000 during the past decade.
“It’s disgusting,” McCreery said. “The vast majority of the Legislature is willing to look the other way on the need for reform.”
