By Chris Izor
During her final semester at college, Frances Beck had hit a financial crossroads, unable to meet her expenses and continue to support her young child. Seeing little other choice, she took out a loan using the only asset she had: the title to her car.
“I sat down and made a literal list of pros and cons,” she said, “and I didn’t really see any other option.”
TitleMax provided Beck with a loan of $ 3,200 with a monthly interest payment of approximately $ 320. In return, Beck handed over title to his car and a copy of his car key, which the company holds as collateral until it repays the loan. His loan has an annual interest rate of 120%, a level illegal in more than 30 states and described as “abusive” by the Center for Responsible Lending, a national advocacy organization in Durham, North Carolina.
Alabama has the most vehicle outlets per capita, according to preliminary research recently conducted by the center. The practice of vehicle title lending began in the early 1990s and has since proliferated in states with lax regulation of low-value, high-interest loans. Only 16 states – the most concentrated in the South and Midwest – explicitly allow these types of loans.
According to a 2006 report by the Consumer Federation of America, Alabama and Georgia are the only states in which a lender can keep all of the proceeds from the resale of a repossessed vehicle after a default. If a borrower does not pay off a $ 1,500 loan on a $ 6,000 car, for example, the lending agency can repossess the car, resell it, and legally retain the full amount of the sale.
According to Diane Standaert, legislative advisor at the Center for Responsible Lending, “Any law that legalizes auto title lending with triple-digit interest rates is not consumer protection. It is essentially the codification of an abusive loan product.
Although the entire loan application process only took Beck 20 minutes, his decision to take out the loan was not so quick. Beck, who has been raising a child since high school, has worked part-time and paid internships at the university to support himself. In her final year, her major in education required over 40 hours per week of unpaid school work as well as considerable time with college-related meetings and projects, and she was running out of schedule. flexible to keep a job or an internship.
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Although Beck has a bank account, she does not have a credit history. She considered that pawning her car was 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 an advocate for improved transport models, calls it the “quick money problem”, in which unexpected circumstances such as car maintenance or health problems create an immediate need for money that many people do not have. Securities lending is of particular concern to Higgs because of the essential nature of transportation in people’s ability to support themselves.
“To keep a job in Birmingham you need three things: a car, a house and the job itself,” he said. “You have to have all three together, and if you lose one, you will lose the others.”
Gera Smith, manager of a Center Point Title Cash store, said she was “on both sides of the office”, both as a clerk at a securities lending office and as a borrower. While employed by Title Cash, she pledged her car in 2002 for a loan of $ 3,000, which she paid back in eight months. The rules prevent employees from taking loans at offices where they work, so she borrowed from another store. Smith estimated that within his store, the average title loan is $ 700 in principal and 25% monthly interest, or 300% per annum. She said borrowers typically take seven months to a year to pay off their loans, and the repossession rate at her store is low.
Bad things happen
“Bad things happen to good people,” Smith said. “What about people who don’t have perfect credit scores? What if they pay their bills but, like many Americans, they’ve lost their jobs? “
People facing these “quick cash flow problems” don’t always have access to traditional credit and loans, said Max Wood, president of Borrow Smart Alabama. Borrow Smart is a commercial organization representing securities lenders and payday lenders, and Wood himself has six securities lending offices in Birmingham and Tuscaloosa.
“It’s not for everyone,” Wood said of securities lending, “but in some cases it’s the best option.”
Shay Farley, chief legal officer for the Alabama Appleseed Center for Law and Justice, said the prospect – that securities lending and payday lending agencies will provide the loans needed by people who do not have access to credit – is the central argument for offering loans that require high interest without a credit check. The fact that people need the money and voluntarily choose to take out these risky loans does not 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 okay,'” said Farley. “It’s a bad product, a defective product. This is designed to keep people in debt.”
In 2007, Alabama Appleseed worked in a coalition with the Alabama Arise political group and then-Senator Bradley Byrne, R-Fairhope, to develop a bill that would regulate the payday loan industry. Payday loans are another type of short term loan with annual interest rates of up to 456% on loans under $ 500. Byrne’s legislation aimed to cap interest at 36% per annum.
Byrne said he and his coalition knew the bill would face significant barriers to passage, and after a well-funded lobbying effort from those opposing the reform, the bill would Byrne’s law ultimately failed, never reaching the floor of the Legislative Assembly for a vote.
“We have always attacked the poor in the South,” Byrne said. “It’s one of those areas of public life where you have people who don’t have a lot of power to take advantage of.”
Since 2007, there has been no legislative action in Alabama regarding securities lending or payday lending. Currently, title loans are governed by the Pawnbrokers Act, which allows annual interest rates of 300%, and payday loans remain under the Deferred Presentation Services Act, which allows annual interest rate of 456%.
Most states have much more stringent vehicle title lending regulations. Thirty states and the District of Columbia cap interest on these loans at 36% per annum or simply have no presence in the securities lending industry. Once a booming state for securities lending, Florida restricted the practice in 2000 by capping interest at 30% per annum, ending the industry’s presence in the state. The move is the result of a reform effort launched by several organizations, including the Florida Consumer Action Network, legal service providers, Catholic charities, and the United Way.
Birmingham City Council imposed a six-month moratorium on new securities lending and payday lending offices within city limits from December 2011. City Council extended the moratorium until the end of October , leaving more time for an investigation of lending practices. .
Councilor Lashunda Scales said she learned of the abusive lending practices in Birmingham in 2004 when she heard stories from her constituents who had fallen into critical debt levels. “It’s just an injustice to workers who are forced by the economic climate to live in difficult circumstances,” Scales said.
Frances Beck said that if she had lived in a state without a title loan, she probably would have sought help from a friend or teacher, but chose not to because “I’m stubborn this way . I hate asking for help. I know this is something I need to work on. “
Since taking the loan in February, she has paid almost $ 2,000 in monthly interest payments, but still had $ 3,200 in principal to repay. Last week, she agreed to accept help from a former teacher who paid the balance of $ 3,200 to TitleMax. Beck plans to repay his teacher over the next few months.
She discourages others from pledging title to their vehicle if they have another option.
“It has been a burden,” she said. “Find another way, if you can.”
About the writer: Originally from Hoover, Chris Izor recently graduated from the University of Alabama with a degree in English. E-mail: [email protected]