ATLANTA — Channel 2 consumer adviser Clark Howard says Georgians looking to borrow against the value of their vehicle need to understand that the loan may come with a big catch if it comes from a title pawn business.
“It’s hard for me to stay calm about this, because it makes me so angry,” Howard said.
Howard said people desperate for money often turn to title pawn companies. These small dollar loans come with big interest rates.
“Almost always at 300 percent,” Howard said.
Griffin resident Mark Walls told Channel 2 Action News that he didn’t have a choice when he pawned the title for his 2007 Chevy Trailblazer. After an accident left him unable to work for two years, his credit plummeted.
“I lost everything. It took like a year and half to get Social Security started and income coming in. From then on, it’s just a downfall,” Walls said.
When an opportunity to open his own forklift repair business came up, Walls was hopeful, but he needed money for equipment. His poor credit left him unable to get approved for a loan at a bank or credit union, so he borrowed $2,000 against the value of his SUV at an interest rate of 22 percent each month.
“It was $400 a month for three months and then it was supposed to drop. I got behind on one payment and I had to turn around and pay $700 interest on it,” Walls said.
After months of making payments, Walls had paid nothing toward the actual loan.
“It’s very stressful and with them adding to it, I’m about to have a nervous breakdown,” Walls said.
In Georgia, laws protect consumers from high interest rates on installment loans, which are loans of $3,000 or less. These types of small dollar loans are capped at 50 percent annually.
Liz Coyle is with consumer advocacy group Georgia Watch, and she told Channel 2 Action News that title pawn companies in Georgia aren’t regulated like installment loans.
“In current Georgia law, title pawns are treated like pawning your grandfather’s watch. They’re not regulated like a small dollar loan, like an installment loan,” Coyle said.
Coyle said the title lending industry is clustered in lower-income neighborhoods where they know people are vulnerable.
“And what most often happens is that consumer can’t make the payment and the first time around after the first thirty days and they keep renewing that loan,” Coyle said. “And before you know it, it’s become a $500 loan for an emergency tied to your car title that has cost you $5,000 years later.”
According the Center for Responsible Lending (CRL), Georgians pay $199 million in fees to title lenders each year and 1 in 5 borrowers who obtain a title pawn loan have their vehicle repossessed.
Kimberly Toole said it’s not only the debt that bothers her, but the lack of transparency in the title pawn industry.
After an illness landed her stepfather in a nursing home, she was left to deal with his finances.
“I knew his bills were coming due, he'd been in the hospital for over a month. So, I go in the house and find the receipt for this title pawn and I was shocked,” Toole said.
Toole took nearly $3,000 from her own retirement to pay the debt. Afterward, she became dedicated to warning consumers about title lending dangers.
“Knowing that people end up owing so much more money than they borrowed is heartbreaking to me,” Toole said. “People are doing this because they have a need.”
That’s when she met with state Sen. Randy Robertson, a Republican from Columbus. A veteran law enforcement officer, Robertson was familiar with the title lending industry.
“As I started drilling down into these title pawn companies I started realizing that there are a lot of good Georgians that work in these companies, but these business models are predatory and never in my mind can I justify a 150 to 300 percent interest rate,” Robertson said.
Last week, Robertson introduced the Motor Vehicle Title Loan Act. If passed, the bill will regulate title pawn companies like banks. Interest rates would be capped at 36 percent.
“If they want to operate a business in Georgia, then they need to operate it the way banks operate their business, the credit unions operate their business, even the way payday loan companies operate their business,” Robertson said.
Walls couldn’t agree more.
“That would make it great for everybody. I had no other choice. I had nowhere to go,” Walls said.