Auto Title Loans, Illegal In Most States, Even Riskier In Georgia
Meet Scott. When builders in financial trouble stopped paying him the money he was owed as a brick and stone contractor, he became desperate. He needed a loan to buy him time while he tried to collect the money he was owed. Thinking he understood the risks, he used his wife's 2004 Ford Expedition to get an auto title loan of $2,000 at an interest rate of 25% per month — or 300% APR.
Oden didn’t like the situation. He didn’t even want anyone to see him walking into the place. But he saw it as short-term —- one or two months at most. That would buy him time, he hoped, to collect some of the tens of thousands of dollars he is owed from builders in financial trouble. If all else failed, he knew he could ask his dad for a loan.
“I knew how expensive it was going to be,” he said, “and I weighed all that in my head without thinking of a repo.”
But the ultimate cost of the $2,000 loan exceeded Oden’s worst-case scenario: The Expedition, with a retail book value of about $13,000 was repossessed and sold. He lost every penny of its value.
The AJC says that auto title loans are only legal in 18 states — and in only two Georgia and Alabama — the transaction is treated as a "pawn," as in you are technically pawning your car. The result? The "auto title lenders" can sell your car for more than you owe them — and keep the difference.
Oden, the contractor who pawned the Expedition, soon learned exactly how Georgia law works.
He made his first payment late and short: paying $200 of the $507 finance charge 11 days after the first due date.
Oden said he called the Lawrenceville business, which operates simply as Title Loans, and promised to catch up. He said he was assured that they wouldn’t take the Expedition, which his wife used for her real estate business.
The next payment was due on a Saturday in November. Oden said he called the store, owned by Optimum Financial Inc., and promised to make the payment the following Monday. He says he was told that would be OK. Instead, Oden says, someone knocked on his door in the wee hours of that Monday morning.
“She said, ‘I’m here to take the Expedition,’ ” Oden said. And she did.
Oden said he went to the title loans office later that day with money in hand to try to get the car back. Instead of taking his money, he said, an employee handed him the personal belongings from the car and told him to come back the next day to talk to the manager.
When he returned, Oden said, he was told the car had already been sent off for auction.
Oden said he couldn’t believe it. “I was shaking,” he said.
He described the car as “immaculate” and loaded: Eddie Bauer trim, a DVD system and seats that were not just heated but cooled.
“It was a real pretty car,” he said.
Title loan’s price high [AJC]
(Photo:meghannmarco)
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Comments:
Wow. That's pretty archaic, letting a title loan stand as a pawn. I think this guy's SoL, but this is the sort of low level predatory lending that people need to be protected from.
Wow, that's....Brutal. I knew auto title loans were bad, but I didn't know it could be that bad. Nice profit for the loan company, though. Buy an SUV for $1800, sell it for $13,000.
@B: Oh, wait, not 13,000, that's the retail book value. At auction, they probably got around 8-9K, Still, a nice, tidy profit.
I can't make myself feel sorry for this guy at all. I've done stupid stuff like this too, paid the price, learned, and moved on. He knew, or should have known, exactly what he was getting into. At least he's now educated as to the exact nature of the predatory lending business.
I'm not blaming the consumer here, but it always seems like strange logic to me.
Times are unexpectadly tough, so you aren't getting by...so you risk your transportation to work, on the idea that you'll be able to pay an additional bill each month.
I understand the need, but if he could have asked his father, why not do that first? I'd sooner risk my family annoyed with me than not having a vehicle for one of the bread winners in the house.
Not to blame the OP, but he couldn't get two grand from his bank or credit union or put it on a credit card? I can think of about 15 places I could get $2,000 before I would take out a title loan on my car.
He should also make sure that his loan contract specifically spells out that the lender gets to keep the difference from the sale of his car. If it does, he's SOL and should have read the contract better. If it doesn't, I would think he has grounds for a lawsuit (IANAL).
IDIOT!
Should of just asked his dad for a loan in the first place.
@rugman11: If the guy was to the point where he was ashamed to be seen walking into the store, I'm sure he exhausted every other option.
It sucks when you get up and work every day but still aren't sure whether or not you'll get paid. I really feel for him.
Repo after 2 months seems a bit odd. Although, his story is a little odd. If he KNEW it was a predatory lend, why did he pay late and short, TWICE?
Here in AL, I've just taken this for granted as the cornerstone of legal usury. I never realized how unusual it was nationwide.
It seems to be "safer" in many lenders' minds than unsecured payday loans, but I suppose a lot of people don't really think about the consequences of really losing their cars. Why should a car be treated any differently than any other pawned item?
He didn't even make the first payment. There can really be no sympathy for this guy. The real issue here is that someone told him it was OK to wait until after the weekend to pay. That person most likely owes him a car for lying to him.
But the law should be changed so that the repo place must give the car owner any extra money generated from the auction.
But as to the risks, people know the risks. If you cannot pay your loan as agreed upon, you lose your car. One missed payment could mean you lose it. That's why these loans are mostly stupid. Anyone that is desperate enough to get one, most likely is not going to be able to pay it back or at the very least will have to miss a payment.
Did the owner of the car actually read the the fine print and all the info for the loan he was signing up for? I understand the price he paid for the loan was extremely high, but he WAS late and short for the first payment and late on the second. He hadn't shown himself to the loan company as being a "responsible" lender. In their eyes, he was a risky loan, so they took action. Seems a great deal of the fault here lies with him, since he didn't abide by the rules.
On the other hand, lawmakers NEED to update or replace that law. Seems like it has too much potential for abuse from the loan companies.
With the current laws, I don't think there is much he can do about it at this point. On the other hand, if none of this was mentioned in the actual contract he signed, he might have an avenue of recourse.
This story would have been a lot more interesting if he had actually paid on time and still gotten screwed over. He paid less than half of the first payment and was late, and was late again on the second payment. What did he expect to happen?
So the lesson here is, if you sign up for something incredibly stupid, at the very least, follow through on your end of the bargain.
This guy screwed himself by failing to become informed of what he was getting into, signing up anyway, and by missing his payments.
Is there anything we can do to blame Barney Frank or Maxine Waters for this?!
I live in Georgia and work for the bankruptcy court here. Title pawns here are one of the main reason people file. It's a shame Georgia allows these companies to remain in business, but it is what it is. Very few people really read the contract or understand the ramifications of paying late (and with the finance charges each month being $500 in his case, the odds of him being able to pay it off are minimal). In 4 months his interest alone is as much as the initial loan amount. It's a sad case, but people should know to run far far away from these places.
I think there is something missing from this story. In Illinois the lender must wait at least 21 days before selling the car. I'm sure it's the same in Georgia. Next, title lenders DO NOT WANT to repossess cars. They want the money. If a customer is making an effort to pay, then the lender will work with them. The reasons are simple. Most people will not pay to retrieve their car once it's repossessed. When a car is then sold at auction it will most likely not fetch as much money as the loan amount regardles of the book value. Further, having customers pay interest payments, even if they are short, is far easier and more profitable than the repossession and subsequent sale of the car. This is because the repo company not only charges $300 or more for the repo, they also charge storage fees of about $25 per day, plus a transportation fee to take the car to the auction. Then the auction will take a big chunk of money from the sale of the car.
Any charges associated with the repossession and sale of a car are ultimately the customer's responsibility. When the car is sold for less than the total owed, the customer will be sued for the difference.
If someone pays 300% interest on a loan, they need only make 5 monthly interest payments for the lender to break even. Any payments received after that are gravy. Most customers intend on paying the loans back quickly, but they usually end up making 10, 20 or even 50 interest payments without touching the loan principal. Having worked for one of these predatory lenders, I can assure you they do not have the customer's interest at heart.
There are many alternatives to these loans, such as credit cards, borrowing from family/friends (painful as it may be), or pawning possessions. I'm sure there are more. To be sure, I believe in a free market system, however, after seeing so many well-intentioned customers lose their cars and suffer the consequences, it's obvious to me that auto title loans and payday loans are dangerous to consumers and should be outlawed.
@AlteredBeast: It might be an issue of pride. A grown man having to go to his father for help? He probably thought he'd be viewed as a failure. And for men, just asking for help can be emasculating.
@Steve Laser: I forgot to mention that on the off chance a car is sold for more than the customer owes, that money must be refunded to the customer. So if this truck actually sold for its book value of $13,000, and the customer owed $2000, then they would be sent a check for $11,000. However, don't forget to add the past due interest, repossession fee, storage fee, transportation fee and auction fee. And you must take into account the fact that there is no way the car sold for book value. Buyers at auction houses will see the car was repossessed from a title lender and will offer far less.
If you need $2,000 that bad, sell your DVD playing, seat heating car and get a cheaper one...
Well, how would you like someone to borrow $2000 from you, and keep telling you "tomorrow"? It this acceptable for business or you wish them to run into the same situation as you are right now, when people do not pay you? What a bunch of irresponsible babies waiting for social government bailouts - take a government job if you do not know how to run your business, and do not complain about risk you took, idiot!
@Jubilance22: Maybe GA and AL will get their act together and ban these types of businesses.
ha! one of the more bigger pipe dreams I've heard so far this year.
Thankfully GA banned payday advance loans. Instead of 7-11's on every corner, we have title pawns on every corner.
The story says, "If all else failed, he knew he could ask his dad for a loan."
How bad must this guys Dad be for him to CHOOSE, a predatory lender over his own Father.
I guess his Dad was charging 600% APR.
Bet he is wishing he went to his dad for a loan now...
My wife (before we were married), did something similar. She missed a payment on her Ford Focus (for like the 3rd time..not in a row), and they repossessed it. She only owed like $1200 on it, and it had like 50k miles on it. However, she would need like 2k to get the car back (fees, towing, interest, balance, etc). She let it go off to auction, and had to PAY like $200 difference in the value of the car.
Her credit was bad, and she went to JD Byrider for a car. She got a 2002 Neon with 100k on it for 6k. I thought "Hmm not too bad". She neglected to tell me the interest rate though. Turns out she will have paid almost 12,000 over 3 years for a car that will be worth about 2,000, and have about 120k miles on it...bet she wishes she had made that Focus payment on-time, and saved 10,000.
RTFA. "If the customer pays the debt and the hefty interest charges on time, he gets the item back.
If not, the broker keeps it and all the profits from selling it."
Regardless of how it works in Illinois, this article explained how it works in Georgia.
@Steve Lasser:
In the article it says that Georgia is one of two states where the loan is considered a "Pawn" and that they can Keep the extra money earned from the sale.
So They are more likely to repo the car since they would get a higher payout even with lower the book resale.
Sounds like he should have taken that loan from his dad...
Truly a sad story.
"State Rep. Rich Golick (R-Smyrna) plans to introduce a bill this week to require title pawnbrokers to return any proceeds in excess of the principal, interest and fees on a loan.
Golick, a veteran legislator, said he believes in the free market and has no interest in driving title lending out of Georgia -- especially in times when many Georgians have few options.
But he's strongly opposed to allowing lenders to keep excess proceeds."
So the problem isn't the criminal usury that these guys ask for, nor is it the unreasonable power they have to immediately take ownership of the title when the contract is breached, it's the "excessive proceeds" they get selling the title.
These southern republicans are so ass backwards that they see no problem with 300% APR. The hand of the free market must be protected, even when it is soaked in the blood of the people you supposedly represent.
@Ash78: Several reasons a title loan should be different that hocking your stereo at the pawn shop:
1) Less risk: A car has a readily determined approximate auction value; this reduces risk to the lender.
2) Why should a title loan be different from a regular car loan? In a regular loan, you get the difference between the balance and the auction value + costs.
3) I could buy this at sane interest rates, but tossing this horrible practice on top of 300% interest is beyond the pale. It makes a payday lender look about as friendly as a credit union.
Bad idea to begin with.
In states other than Georgia and Alabama the loan companies claim they need such crazy high rates to offset the people who get a title loan against a P.O.S. car for more than the car is really worth and bail on the repayment, sticking them with a junker.
Still, missing the 1st payment? W.T.F.? With loan terms that horrible, you might as well ask for $2500 and then make the 1st payment right then so you'd have 2 months to scrounge up the rest.
@chris_l:
Oops, my math was bad. It's 25% for 3 months, 12.5% after that. So annually, it's 187.5%. Woopee!
Still doesn't change fact you're having titles taken that are disproportionately larger than the loan itself. Since these ignorant "free market even if it ends in federal, state, local, and individual bankruptcy" republicans won't outright ban these businesses, how about only having the ability to repo is the loan is 25% or more than the title? I wouldn't have too much of a problem is someone is $5,000 behind on a $20,000 car.
@Steve Laser: If you get to keep all the massive profit from selling the car (as is the case here), you most certainly DO want the car instead of the money.
I think a lot of people go to these places thinking that they can not get a loan elsewhere. They never even check with their bank or credit union and that's a shame.
A bad situation, but it is funny how he suddenly had the money to pay when backed into his last corner. Not all the blame goes to the predatory lender. This guys sounds like he was pushing them as far as he could and he got burned.
@Jubilance22: Regulation isn't exactly southern states' strong point. And these things bring in loads of money to the local city councils -- why close them?
I understand perfectly what this guy was going through that made him seek out the title loan. My family's company does custom cabinetry, and builders and banks have been coming up with every excuse you could imagine not to pay on time. They've even done things that would technically be breaking the contract but know that nobody can afford right now to do anything about it.
In the construction industry, the subs need the builders and banks for business, but also need to get paid for the work they do. It's quite sad, they're between a rock and a hard place because there is really nothing they can do. If they give up and go looking for other work they may not find anything, and if they take it up a notch and work harder they may never get paid for it. Traditional work ethic really doesn't guarantee you anything in this situation and instead you are forced to hope the power brokers involved get their acts together. It's definitely easy to get depressed over the whole mess.
@Trai_Dep: Yep -- they were too busy trying to hide the truth of Obama's birth to help make laws to stop this!
@hovy: it is definitely an issue of PRIDE.
We just had a family member with 3 kids, a good job, come >< this close to losing his home to foreclosure because he missed ONE payment and could not keep current and then stopped paying because Countrywide told him they would hook him up with a debt consultant to help him.
He just kept letting it roll over thinking they would work out something to help him and we were kept in the dark.
He thought they would look out for HIS interests and thought he could handle this on his own and no one else would ever find out.
We found out when he had 3 weeks left before they foreclosed. They wanted over $30K in mortgage payments and fees to stop the foreclosure.
If he had contacted us for help 2 weeks earlier we could have had a lawyer get the fees waived and the total amount probably cut in half, but he waited too long and it was too late.
We had to pay the full amount Countrywide wanted to bail him out.
All because of his "pride".
@Fresh-Fest-1986: Dude. The guy signs papers saying "If you fail to pay us in exactly the method listed here, we take your car". Guy then pays them 11 days late, and several hundred dollars short. Twice. What did he expect?
@Fresh-Fest-1986: I think he does. But seriously, this guy was asking for it. He knew it and did it anyways. If he could get a loan from his father, why didn't he ask him in the first place?? That would have been no interest, no due date, no risk and if for some reason, he can't pay back, I think his father would have been generous enough to let it go.
I feel bad for the guy, but he had to have seen this coming, especially with 2 late payments. I'm all for solving the problem on your own, but if he could have gotten help from his father, then that's where he should have gone.
@microcars: That's a terrible thing that he let it go that far. But you are incredible people for helping him out with that.
@weakdome: I'm going to go out on a limb and say he probably didn't have it. And a 2 month repo on late payment is extreme as hell.
I feel bad for Title Loans. Now they have to get rid of a 5 year old gas-guzzler. They are the real victims of this deadbeat who knew the conditions of the loan when he said "I knew how expensive it was going to be," he said, "and I weighed all that in my head without thinking of a repo."
These types of "loans" have always seemed sketchy to me. Even when I was in a very dire financial situation, I never even considered this kind of place. Seemed like I would lose more than I gained.
Maybe GA and AL will get their act together and ban these types of businesses.