Title loan’s price high

Scott Oden is the kind of guy who lends other people money. But the brick and stone contractor’s thriving business tanked with the rest of Atlanta’s real estate market. By September, he was desperate.

“My mortgage was due and my foreman was about to be evicted from his apartment,” said Oden, 42.

Oden decided to walk into a storefront business he had driven by all week. It featured two huge neon dollar signs in the window and a bright red sign advertising its service: title loans.

The married father of two walked out with $2,000. But he had to leave behind the title to his wife’s green 2004 Ford Expedition and agree to interest charges of 25 percent a month —- which computes to an annual rate of 300 percent.

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.

More seeking quick cash

Thousands of Georgians face the same dilemma.

Their businesses are belly up or they’re unemployed. They’re about to lose the house or have the power turned off. And for the first time in their adult lives, many simply can’t get money from a bank.

They are a new class of borrowers resorting to high-cost loans of last resort.

And some, such as Oden, are learning difficult lessons about doing business with lenders who operate on the lowest rung of the subprime ladder.

With the realities of the economy in mind, the Georgia General Assembly will soon debate whether the state should rein in Georgia’s title pawnbrokers, who operate under one of the most permissive title lending laws in the nation.

Those in the business say car title lending is a service to consumers with poor credit who simply can’t get loans elsewhere. But only 18 states allow similar high-cost loans to borrowers who surrender their car titles. In only two —- Georgia and Alabama —- is the transaction conducted as a pawn, according to Jean Ann Fox, an expert on lending issues for the Consumer Federation of America.

While most storefronts for these businesses feature neon signs advertising title “loans,” the fact that the transaction is technically a pawn means the money comes with the same risks and benefits of taking a diamond ring or stereo to a pawnshop.

The pawnbroker will lend only a fraction of the worth of the item. But there’s no credit check and no debt collection process or garnishment if the consumer can’t pay.

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. And that’s the part that most troubles consumer advocates who want to revise the rules for pawning a car.

“Why would you allow any creditor to keep more than the borrower owed them?” Fox asked.

Risks, gains both high

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.

“It is nothing more than a tool to gain a windfall unrelated to the underlying transaction,” he said in an e-mail.

While consumers suffer most when they lose an expensive car in a title pawn, advocates say the transactions are troubling for many reasons. A family that loses a car risks losing a job, they say. And they contend the triple-digit annual interest costs are excessive. If a customer extends a $500 transaction over a year, he would pay more than $900 in interest without ever paying off the loan. And in Georgia, there’s virtually no oversight of the industry.

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.

Mark Friedman and Brian Jones run the store where Oden pawned the Expedition. Friedman said he got into the business eight years ago after working in the used car industry. Nine times out of 10, he said, the transactions work out well for both him and the customer.

“We’re there to help people when no one else would,” he said.

Friedman confirmed that he repossessed Oden’s Expedition after he missed the second payment. But he said Oden had been warned it would happen.

“He made so many promises he couldn’t keep. Even after the repo, he couldn’t make the payment,” Friedman said.

Unlike in Oden’s case, Friedman and Jones said, taking a customer’s car is usually a money-losing proposition. They said cars pawned tend to be older vehicles. Sometimes customers wreck them or the car breaks down and is worthless.

During an interview last week, Jones and Friedman told story after story about customers who swindled them by ordering replacement titles, taking out multiple title pawns or taking the car out of state.

“On the occasions there is a profit [with a repossession], then you merely offset all the many occasions that you do lose,” Jones said.

Grace period required

In title pawn cases, Georgia law requires a 30-day grace period after the due date on the transaction to allow the consumer to redeem the car by paying off the principal, interest and fees.

The Expedition was sold within days of the repo.

Friedman said he followed the law. He said Oden did not pay the full amount when the first payment was due and also missed the second payment. He said he did give him a couple of days to redeem after the grace period expired.

But Oden said Friedman never gave him a chance to pay off the loan after the car was repossessed, and he believes he was legally entitled to more time to pay. He said if given the opportunity, he could have paid off the loan by borrowing money from his father.

Georgia requires no statewide licensing of pawnbrokers, as Alabama does, and therefore offers consumers no regulatory body to field complaints from people like Oden.

Pawnbrokers need only local business licenses. No one even knows how many title pawnshops operate around the state.

While the industry claims it often loses money on repossessions, it’s impossible to verify those claims.

“Current law allows the industry to operate in the dark,” said Allison Wall, executive director of Georgia Watch, a statewide consumer organization.

While consumer advocates favor better enforcement of the law, they say it’s crucial to stop the patently unfair practice of allowing title lenders to keep cars worth thousands of dollars more than the loan amount —- especially in today’s economy.

Wall said Oden’s case is not isolated. In December, according to Georgia Watch, a woman lost a $14,000 Mercedes sedan over a $500 loan. In a case over the summer, another consumer lost a $9,000 Mercedes SUV over a $628 pawn. And those are just some of the consumers who have found their way to the organization’s advocates.

“The law allows title lenders under certain scenarios to legally have unjust enrichment,” Wall said.

Oden is incensed that the brokers took the Expedition without giving him time to redeem it. He thinks lawmakers should take action to make the transactions more fair for consumers, but he doesn’t want the industry shut down.

“Some people have no other alternative,” said Oden, whose family has avoided foreclosure on its Gwinnett County home.

Reform efforts

Lawmakers in some states have forced title pawn out. Florida lowered the maximum annual interest rate to 30 percent, which shuttered the industry. Iowa, Oregon and New Hampshire also lowered maximum rates to a level that closed down the industry.

With those actions, they joined more than half the states whose laws prohibit the high-cost transactions that title lenders say they need to make the business work.

Georgia’s General Assembly has declined to pass bills introduced in recent years to rein in the industry. However, the state in 2004 shut down payday lending, another form of short-term, high-interest lending that consumer advocates oppose.

“Georgia showed great national leadership in cracking down on payday lenders,” said Fox, of the Consumer Federation of America. “It is completely inexplicable that they would permit car title lending to remain.”

Golick, the state representative who plans to introduce the title pawn bill, said the industry has strongly opposed any changes to Georgia’s law. He said he recently asked an industry lobbyist whether his client would support a new requirement that customers initial the provision of the pawn contract that allows the lender to keep all the proceeds of selling a car that is repossessed.

“That is, if this predatory practice was going to occur, at least the consumer would go into the transaction with their eyes wide open,” Golick said in an e-mail. “The response was ‘no’. “

Golick said that response suggested to him that the companies want the windfall and don’t want customers to understand the risks.

“To me, that smacked of bad faith,” Golick said, “and was very educational about who I was dealing with.”

HOW IT WORKS

Pawn brokers make small loans —- usually in the hundreds of dollars —- and hold a customer’s car title as collateral. Loans can be made only to those who own vehicles free and clear.

THE COST: Under a 1992 law, title lenders may charge a maximum of 25 percent a month for three months —- an annualized rate of 300 percent. Thereafter, the maximum drops to 12.5 percent a month. A consumer who borrowers $500 would have to pay $875 over three months to get the title back.

THE DOWNSIDE: Cars can be repossessed if a borrower misses a payment. Lenders can sell repossessed cars and retain the entire proceeds of the sale, even if those proceeds far exceed the balance on the loan.

THE OVERSIGHT: Georgia requires nothing more than a local business license. There is no state regulation and few options other than a private lawsuit for consumers who feel they have been mistreated in a title pawn.

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 Scott Oden borrowed $2,028 using a $13,000 vehicle's title as collateral. His contract showed $507 in interest was due in 30 days. He paid $200, 11 days late, and said he was told he could catch up with the next month's interest payment; but the vehicle was repossessed and sold.