CAN CAR TITLE LENDERS BE LIMITED?
Virginia Attorney General Bob McDonnell accused Daniel Poston, a Virginia Beach tile business owner who turned car title lending contractor, last August of breaking state laws. loans and forced him to repay or not collect $ 62,000 from 133 borrowers.
Three days after the settlement was signed, Poston’s Oceana Auto Title Loans repossessed the 2005 Kia Optima from Loretta Ann Sturgis, which should have been safe under the agreement. Sturgis defaulted after paying $ 819 in payments on a $ 1,300 loan, which had grown with interest to $ 3,900 in 10 months.
When a distressed Sturgis went to his pastor, he discovered that McDonnell Colony should have protected Sturgis, and he confronted Poston – whose tone quickly changed. He returned the vehicle, forgave the balance of Sturgis’ debt, and made a contribution to his church.
The attorney general’s office discovered that Sturgis was not on the borrower list, and Poston admitted that he may have missed a few more that should have been covered by the settlement – around 187 borrowers. The new regulations swelled to 320 people, nearly $ 329,000 in restitution to borrowers and $ 50,000 in state fines.
Welcome to the Wild West world of auto securities lending in Virginia.
For three years in a row, senior financial and consumer law enforcement officials in Virginia have been waiting for the legislature to issue direction on how to regulate auto title lenders. With no action by the legislature during this period – when auto title lenders spent $ 1 million on donations and lobbyists – the controversial lenders were given almost carte blanche.
McDonnell, who received some of the donations, has settled legal cases against six lenders in the past year who blatantly violated state consumer laws. It forced millions of dollars in settlements for consumers, but it also blessed the current business model as legal as long as lenders wait 25 days to start charging interest.
Lawsuits against consumers have cast doubt on the legality of the business model under state law. Auto title lenders say they offer an open line of credit like a credit card, with no interest limit under state law. Consumer advocates say it is a one-time loan and auto title lenders’ debt repayment period extensions are not the same as a credit card, which would limit debt repayment periods. interest that may be charged.
McDonnell has offered no formal opinion on whether the auto title lenders’ business model is similar enough to a credit card to be legal, but a recent column he wrote revealed his thinking. He said the six lender regulations “are not the norm” and that auto title lenders “routinely grant loans in accordance with state law.”
Asking for some type of securities lending regulation has never been on McDonnell’s legislative agenda. After a years-long battle waged by the Iowa attorney general, the state recently banned auto title lending. Similar to Virginia and Kansas, Iowa had attracted lenders by allowing unlimited interest rates on credit cards.
“They made it a priority and made it a campaign, and they did it,” Jean Ann Fox of the Consumer Federation of America said of Iowa’s top consumer rights lawyer.
In recent years, auto title lenders of all stripes have grown statewide and are particularly prevalent in Hampton Roads. From big national chains like LoanMax to mom-and-pop operations by people like Poston, the state has no idea how many there are. LoanMax, which has 40 locations in Virginia, estimates there are less than 100.
McDonnell has targeted six auto title lenders in the past year for blatantly breaking laws that apply to short-term loans with a specific maturity date. But advocates for the poor say that when McDonnell tackled his first target, he provided a plan of how businesses can continue to use the loophole.
“They almost blessed it like open credit,” said Jay Speer of the Virginia Poverty Law Center.
If a loan has a final maturity date, it is considered a closed-end loan with an interest limit of 12% or 36%, depending on the type of loan. Payday lenders have a special exemption that allows them to offer a short-term interest rate greater than 300% annual interest.
McDonnell’s settlement with LoanMax in June forced auto title lenders to slightly change a specific business practice. As long as they have waited at least 25 days to start assessing their clients’ finance charges, they are free to charge whatever interest rate they want.
Despite McDonnell’s high-profile crackdowns, many lenders continue to charge fees immediately, eliminating any pretense of offering open-ended credit.
“They’ve made loans that are clearly closed,” said Speer, who said the few consumer lawyers in the attorney general’s office were doing a good job, but there aren’t enough of them.
Part of the recurring violation may be that there is no central listing of the number and location of auto title lenders in the state. State authorities have no way of warning lenders to avoid a widespread illegal practice.
In recent years, auto title lenders have become substantial donors and have spent a lot of money on lobbyists.
A year after finishing a decade on the bench as a judge on the Crown Corporations Commission, former House of Delegate member Isaac Clinton Miller went to work for corporations as a lobbyist in 2007. He is now tasked with telling lawmakers why his old agency should have little to no oversight on lenders.
“They have very well connected people pushing for them,” Speer said.
The last big battle occurred during the 2007 session, when Del. Terry Kilgore, R-Scott, tried to pass an industry bill that would allow unlimited interest rates. Of the. Harvey Morgan, R-Gloucester, called for a 36% interest rate cap. Both bills failed.
The two lawmakers changed positions in 2008. Kilgore took over the trade and labor committee led by Morgan and would hear the car titles bills. A regulatory bill was killed again in 2008 when both sides backed down as payday loans were the big fight of high interest loans.
“We expect this to be a huge battle next year,” Speer said.
Osjha Andreson, director of government relations for LoanMax, said the company supports a series of consumer protections the General Assembly may consider, including: licensing and bonding, standard plain English disclosures, a ban to seek personal judgments against borrowers, the right to cancel a loan the next day and the authority of the Crown Corporations Commission to investigate compliance.
Although the state has not acted so far, Hampton Roads was affected by the military’s effective ban on payday loans and car titles to the military in October. Due to an act of Congress, loans would be capped at 36%, which the industry says is not enough to make a profit.
WHO ARE THEY?
In the absence of regulation, lenders played by their own rules:
* The first target for McDonnell was LoanMax, which is owned by the same company as Loan Smart and is the nation’s largest auto title lender. The Atlanta-based company is owned by Rod Aycox. The companies donated nearly $ 523,000 to politicians in Virginia from 2004 to 2007, and spent $ 174,000 on lobbyists.
* The other big player in Virginia is Fast Auto & Fast Payday, which has five sites in Newport News and Hampton that serve as both payday lenders and car titles. The parent company of this operation is Community Loans of America, which has spent $ 186,000 on lobbying and political contributions in recent years. The company, which operates in multiple states and has 41 stores in Virginia, is also based in Atlanta and led by Robert Reich.
* McDonnell’s second target in August was Oceana Auto Title Loans and Rosemont Auto Title Loans, Virginia Beach companies owned by Poston, which also owns Beach Tile Co. in Virginia Beach.
* The following settlement is with Cashpoint, which is owned by Dominion Management Services and has four stores in Northern Virginia. $ 1 million in relief was ordered to 904 borrowers.
* The most recent target was Auto Cash Title Loans, based in Arizona. The small business started with stores in Tucson and Mesa, Arizona, before moving to Richmond and Spotsylvania.