By Chris Izor
In her final semester of college, Frances Beck had reached a financial crossroad as she was unable to keep up with her expenses and continue to support her young child. Seeing few other options, she took out a loan on the only asset she had: ownership of her car.
“I sat down and made a literal list of pros and cons,” she said, “and I saw no other option.”
TitleMax gave Beck a loan of $ 3,200 with a monthly interest payment of approximately $ 320. In return, Beck handed over ownership of her car and a copy of her car key, which the company keeps as security until she has paid off the loan. Your loan has an annual interest rate of 120 percent, a level that is illegal in more than 30 states and is labeled “Abusive” by the Center for Responsible Lending, a national advocacy group in Durham, NC
Alabama has the largest number of car rentals per capita, according to preliminary research the center recently conducted. The practice of lending on vehicle titles began in the early 1990s and has since spread to states with lax regulation of high-yield small dollar lending. Only 16 states – most concentrated in the South and Midwest – explicitly allow this type of loan.
According to a 2006 report by the Consumer Federation of America, Alabama and Georgia are the only states where a lender can keep all proceeds from reselling a repossessed vehicle after a loan default. For example, if a borrower defaults on paying a $ 1,500 loan on a $ 6,000 car, the credit agency can repossess the car, resell it, and legally withhold the entire amount from the sale.
According to Diane Standaert, legal advisor for the Center for Responsible Lending, “Any law that legalizes triple-digit car loans is not a consumer protection. It is essentially the codification of an abusive loan product.”
Although it only took Beck 20 minutes to process the entire loan application, her decision on the loan was not made that quickly. Raising a child since high school, Beck worked part-time jobs and paid internships throughout college to make a living. During her senior year of study, her undergraduate studies required more than 40 hours a week of unpaid work in a school, lots of time for collegial meetings and projects, and she no longer had the flexible schedule to keep a job or internship.
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While Beck has a bank account, she has no credit history. She saw mortgaging her car as the only way to get the money she needed to stay afloat.
Lawton Higgs, founding pastor of the Church of the Reconciler in Birmingham and advocate of improved transportation models, calls this the “quick cash problem,” where unexpected circumstances such as car maintenance or health problems create immediate cash needs that many people do not have. Title loans are of particular concern to Higgs as people’s ability to transport is fundamental to self-sufficiency.
“To keep a job in Birmingham you need three things: a car, a home and the job itself,” he said. “You have to have all three together, and if you lose one, you lose the others.”
Gera Smith, manager of a Center Point Title Cash business, said she was “on both sides of the desk” as both a title rental agent and a borrower. As an employee of Title Cash, she mortgaged her car in 2002 for a $ 3,000 loan that she paid off in eight months. Rules keep employees from borrowing from offices where they work, so she borrowed from another store. Smith estimated the average title loan in her business is $ 700 and is 25 percent monthly interest – or 300 percent annually. She said borrowers typically take seven months to a year to pay off loans and the redemption rate in their business is low.
Bad things happen
“Bad things happen to good people,” said Smith. “What about the people who don’t have perfect credit? What if they pay their bills, but how many Americans have lost their jobs?”
People facing these “quick cash problems” don’t always have access to credit and traditional credit, said Max Wood, president of Borrow Smart Alabama. Borrow Smart is a trading organization representing title and payday lenders, and Wood himself has six title lending offices in Birmingham and Tuscaloosa.
“It’s not for everyone,” said Wood of title loans, “but in some cases it’s the best option.”
Shay Farley, legal director at the Alabama Appleseed Center for Law and Justice, said that that perspective – that title and payday loan agencies are offering needed credit to people who do not have access to credit – is the central argument for offering credit that requires high interest rates without credit checks. The fact that people need money and are happy to opt for these risky loans doesn’t justify the practice, she said.
“We wouldn’t let bad meat rot in the grocery store and say, ‘That’s all some people can afford, so it’s fine,'” Farley said. “This is a bad product, a flawed product. This is to keep people out of debt.”
In 2007, Alabama Appleseed worked as part of a coalition with the Alabama Arise political group and then Senator Bradley Byrne, R-Fairhope, drafting a bill that would regulate the payday lending industry. Payday loans are another type of short term loan with annual interest rates of up to 456 percent for loans under $ 500. Byrne’s legislation aimed to cap interest rates at 36 percent annually.
Byrne said he and his coalition knew the bill would face significant barriers to passage, and after well-funded lobbying by opponents of reform, Byrne’s bill eventually failed and never got the legislature’s floor for a vote.
“We have historically exploited poor people in the south,” said Byrne. “This is one of those areas of public life where people with not much power are taken advantage of.”
Since 2007, there has been no legislative action in Alabama that deals with the award of titles or the payday loan. Currently, title loans are subject to the Pawnshop Act, which allows 300 percent annual interest rates, and payday loans are still subject to the Deferred Presentment Services Act, which allows 456 percent annual interest rates.
Most states have far stricter regulations on the issuing of vehicle titles. Thirty states and the District of Columbia either cap interest rates on these loans at 36 percent per annum or simply have no presence in the title-giving industry. Florida, once a booming state for title awards, curtailed the practice in 2000 by capping interest rates at 30 percent annually, essentially ending the industry’s presence in the state. The move was the result of reform efforts by several organizations including the Florida Consumer Action Network, legal services, Catholic charities and the United Way.
The Birmingham City Council, starting December 2011, imposed a six-month moratorium on new offices for granting titles and payday loans within the city limits. The city council extended the moratorium to the end of October to allow more time to investigate lending practices.
Councilor Lashunda Scales said she became aware of abusive lending practices in Birmingham in 2004 when she heard stories from her constituents who had fallen into critical debt. “It is simply an injustice to working people who are forced to live in difficult circumstances by the economic climate,” said Scales.
Frances Beck said that if she had lived in an unedited state, she would likely have gone to a friend or professor for help, but chose not to because “I’m so stubborn. I hate asking for help, something that I have to work on. “
Since taking the loan in February, she has paid nearly $ 2,000 in monthly interest payments but still had to repay the full $ 3,200. Last week, she agreed to accept help from a former professor, who transferred the remaining $ 3,200 to TitleMax. Beck plans to repay her professor in the next few months.
She advises others not to mortgage their vehicle title if they have another option.
“It was a burden,” she said. “Find another route if you can.”
About the author: Hoover native Chris Izor recently graduated from the University of Alabama with a degree in English. E-mail: [email protected]