Consumer advocates have long claimed that usury caps are the best way to protect borrowers from predatory lenders offering payday or auto title loans. But even those protections aren’t surefire. A title loan company in Florida has been skirting the state’s cap for the past three years.

According to a report from ProPublica, the largest title lender in the country, TMX Finance, revamped the lending contracts at its InstaLoan businesses so customers are now required to pay for products with fees that effectively result in triple-digit interest rates, despite a 2000 Florida law prohibiting annual interest rates above 30%.

A basic 30-day title loan entails a consumer handing over the title to their vehicle as collateral for a loan ranging from $100 to several thousand dollars. If the borrower can’t repay the loan when it comes due, she can pay just the interest and renew the loan for the principal. If the borrower defaults on the loan, the lender can auction off the car.

Similar to payday lenders, title loan companies receive most of their profit from consumers who can not pay off their loans and instead renew them several times.

TMX, which has 26 InstaLoan locations in Florida, charges borrowers the maximum interest rate, and then adds fees for two types of insurance plans – neither of which actually protect the consumer.

Instead, the plans reimburses InstaLoan in case the car is damaged. When consumers can repay their loans, they are required to pay fees for a new round of insurance each month in order to keep their vehicles.

While InstaLoan labels the fees as voluntary, the lender requires the protection either through InstaLoan or the borrower’s own insurance plan.

ProPublica reviewed 28 loan contracts made by Florida residents over the past two years and found that the insurance costs made the loans carry an effective annual rate of 144%.

A number of consumers have filed complaints with state regulators over TMX’s business practices.

One woman borrowed $3,100 and made $2,600 in payments, but after rolling her loan over seven times she still owed $3,900.

In another instance, a customer with a $866 monthly income had to pay a third of her wages to renew her $3,000 loan. Rather than repay, she surrendered her vehicle.

An attorney for Florida Legal Services says the company “appears to be in violation of the law and taking advantage of families struggling to survive in these hard times.”

Consumer watchdogs tell ProPublica that companies such as TMX Finance are using ineffective add-ons to run around the law.

“The sale and financing of the credit insurance as part of these auto title loans is deceptive and abusive,” Birny Birnbaum, the executive director of the nonprofit Center for Economic Justice, says.

To make matters worse, ProPublica found that the company selling insurance through InstaLoan – Lyndon Southern Insurance Co. – sends more than half of the borrowers’ premiums back to lenders in the form of commissions and other fees.

So far, little has been done by Florida regulators to stop TMX’s practices. In fact, the company plans to continue expanding storefronts, a decidedly easy task.

To open a store in the state, TMX must seek approval from the Office of Financial Regulation. Early in the company’s expansion, regulators inspected a TMX store at the company’s invitation and found a number of minor violations.

The company paid a $4,000 fine and fixed the issues including advertising itself as a “title loan lender,” because the company is not registered under the law governing title lenders.

TMX is registered under a statute meant for consumer finance companies that offer longer-term installment loans, despite the fact InstaLoan offered short-term loans against car titles.

Officials with the Office of Financial Regulation maintain that TMX’s license authorizes it to originate consumer finance loans.

It’s not just TMX’s InstaLoan businesses that are attempting to skirt state and local laws. Last year, we told you how TMX’s TitleMax loan operations in Texas got around city laws by giving away free cash and then redirecting customers to lenders outside city limits when they need to refinance.

Insta-Loophole: In Florida, High-Cost Lender Skirts the Law [ProPublica]

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