November 28, 2015

Jennifer Robison
Las Vegas Review-Journal

High interest rates associated with auto-title loans grab most of the industry's headlines.

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High interest rates associated with auto-title loans grab most of the industry's headlines.

But what happens when a car is taken and auctioned off can be just as devastating to the borrower — and it gets a lot less attention.

Laws governing lender responsibilities and borrower rights in the sale of a repossessed car vary by state, and the auction process is unsettled enough that consumer groups want stronger regulation by the federal Consumer Financial Protection Bureau.

"We would like to see protections around the repossession of the car to make sure consumers receive fair-market value in its entirety if the car is sold," said Tom Feltner, director of financial services at the Consumer Federation of America in Washington.

It doesn't always work out that way.

When Las Vegan Wayne Fischer lost his truck to repossession in July 2014, his title lender, EZ Money Payday & Title Loans, sold the 2006 Ford Ranger through Manheim Auctions in North Las Vegas.

Fischer owed $2,490 on the truck, which had a blue-book value of $5,000. The dealer who bought it at a private auction paid less than $2,000 but eventually sold it for $8,000.

Fischer saw none of the $6,000 surplus.

Nevada requires the surplus proceeds from a repo sale to go to the borrower — but only if the car is sold at a public auction. If it's sold at a private auction to a dealer, the consumer gets nothing.

A creditor can skirt that law because they get to choose the auction type, said Sophia Medina, a Legal Aid Center of Southern Nevada attorney.

"They're only looking to recover what they are out-of-pocket," Medina said. "At a public sale, they would recover a lot more money and then have to pay back the borrower."

Neither EZ Money nor Manheim would comment for this article, but consumer advocates say creditors who opt for private auction probably want to avoid the paperwork involved in returning money to former customers.

The practice also prevents borrowers from bidding on their own vehicles — only licensed dealers are allowed to bid.

A public auction may not provide much more satisfaction for a borrower, though. Many title lenders charge storage and repo-related fees that dramatically eat into the amount the consumer might get back after a public auction, Feltner said.

And if either type of auction fails to raise enough to cover the debt, Missouri, Arizona and some other states allow lenders to chase the difference in court through deficiency proceedings.

Other states with poor auction protections include Alabama, Georgia and Mississippi, which let lenders keep at least some of a sale surplus.

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