The Debt Trap: Texans taken for a ride by auto-title loans
Editor’s note: One study shows that the average Texan is about $40,000 in debt. Some of them fell prey to the easy money available through auto title loans, and that number is rising. In 2013, Texans paid as much as $360 million in fees to auto title businesses — $53 million more than in 2012. The Debt Trap is a collaborative project by theStar-Telegram , WFAA and theAustin American-Statesmanaimed at shining a light on loans that either help the economically disadvantaged or devastate them, depending on whom you ask. This installment explores car-title loans. Upcoming installments will look at reverse mortgages and student loans.
FORT WORTH — Mary Dixon was hours away from losing her 2007 silver Mercury Mountaineer on Feb. 6.
Dixon, 47, of Mansfield, had borrowed $2,994.95 on Dec. 2 to cover a family emergency. By January, she had already doled out a prepaid finance charge of more than $300. Now she owed a final balloon payment of $3,351.28 to a title-loan storefront on East Lancaster Avenue.
She had a lot of company. In Texas, nearly 380,000 borrowers paid as much as $360 million in fees alone to hand over the titles to their cars for fast cash, 2013 state data show. That’s a $53 million jump in fees from 2012 to 2013, according to state data for 2012 and 2013. Those fees do not include finance charges because the state does not keep track of the charges.
(See interactive graphic.)
Not surprisingly, vehicle repossessions by auto title businesses have also gone up. In the first three quarters of 2014, Texas payday and auto-title lenders reported more than 32,100 repos to the Office of Consumer Credit Commissioner.
“Losing a vehicle, for a family that’s living very close financially to the edge, it’s devastating to people. They can’t get to work; they can’t take the kids to school; they can’t go to doctor’s appointments,” said Ann Baddour, director of the fair financial services program for Texas Appleseed, an Austin group that advocates for the poor.
Whereas some cities including Dallas and Austin have ordinances to regulate auto title loans and payday loans, which are similar, the state offers no protections for consumers. The state does not enforce a rate cap, nor does it tell businesses how much they can charge or how to structure the loans. The result: Virtually any rate or fee can be applied to a loan.
Some proponents say the loans are a lifeline to people who need them; others, like Arlington City Councilman Robert Rivera, say cracking down on title businesses won’t matter unless people learn to make good financial decisions.
Fort Worth Mayor Betsy Price opposes local restrictions on title businesses. Like Rivera, she prefers to look at educating the public.
Arlington Mayor Robert Cluck has a different take: “I’m not at all in favor” of title loans and payday loans, Cluck said. “It’s almost criminal the way they take advantage of underprivileged people.
“Shame on us for allowing this to to continue.”
‘No credit check’
It’s easy. All you need is a car title to take out an auto title loan. Nobody checks your credit or how much money you have in the bank. You have lots of unpaid bills? No matter.
Title businesses lure customers with slogans such as “more cash,” “instant approval,” “no credit check” and “keep driving your car.”
But the interest charges you may owe before all is said and done can be alarming. In the Fort Worth/Arlington metropolitan area, the average amount advanced for a single payment auto title loan is $1,222, state records show. The borrower is likely to pay an average of $16.63 per $100 borrowed. The average term of a loan is about 29 days.
A borrower who pays within 29 days would owe about $202 in simple interest alone. After 120 days, the interest grows to about $808 and keeps mounting. By then, the title loan is costing the borrower $2,030. In simple interest, that would be a rate of about 66 percent over four months. Over 12 months, that’s 198 percent in simple interest — but businesses sometimes may use compound interest, which would make the amounts even greater.
The finance charges and types of interest vary because title businesses offer different types of loans. If the borrower misses a payment, makes a late payment or doesn’t pay at all, the car belongs to the lender.
One day, you might be at the grocery store, and “you come out and your car is gone,” said Paul Randle, an asset manager at Business & Community Lenders of Texas, which has a Dallas office and provides loans at 18 percent to local borrowers.
James Morris of Dallas said he wasn’t paying attention when his girlfriend took out a small title loan to repair the fuel pump on their car, a 1999 white Buick LeSabre.
Morris, 58, thought it would be OK to pay $30 a month on a $200 title loan. But many months later, he still owed money, he said.
He went to speak with the title lender and was told he had only been paying interest — no principal — for a year.
“I told them and her [his girlfriend], ‘Y’all done lost your mind.’”
After that, he stepped up the payments. “You know what I mean? You’re not taking the car.”
All told, he ended up paying more than $560, Morris said.
Feds, legislators look at the issue
The ease of obtaining title loans has caught the attention of the U.S. Consumer Financial Protection Bureau. The federal regulator says it is on the brink of writing new rules that would cut into the profits of the $46 billion payday and title loan industry.
In Texas, state lawmakers, including Reps. Helen Giddings, D-DeSoto, and Ruth Jones McClendon, D-San Antonio, Sens. Rodney Ellis, D-Houston, and Royce West, D-Dallas, want to put restrictions on payday and auto-title lenders..
Robert Norcross, who represents the Consumer Service Alliance, made up of 3,000 payday and car title lenders in Texas, acknowledged that “we absolutely need to do a better job … to create some sort of safety net for those people who, for whatever reason, fall into a problem.’’
West has introduced Senate Bill 1221, which is intended to restrict high-interest loans that can balloon on borrowers. McClendon has filed a bill to protects military personnel from abusive practices. But last session, a bill that proposed statewide limits on payday lending, filed by then-Sen. John Carona, R-Dallas, failed in the House.
Norcross said he expects the Legislature to make some changes.
“There’s definitely more regulation on the way from the federal level, so for folks who are wondering, hoping, theorizing about whether there’s going to be more regulation for small short-term loans, it’s coming and it’s coming from a couple of different directions,” he said.
A good compromise would likely upset both sides, he said. “In 2013, we spent so much time making everybody happy that the bill ended up being 48 pages long. Once you get to that point, in my opinion, you’ve messed it up.”
Meanwhile, state Sen. Don Huffines, R-Dallas, has introduced a bill that would bar local governments from implementing ordinances that are more stringent than state law on the same subject.
If passed and signed into law, Senate Bill 343 likely would repeal ordinances to restrict payday and auto title loan businesses in cities such as Dallas, Flower Mound, Saginaw and Watauga. In Dallas, borrowers are also required to meet certain income guidelines before a loan can be issued.
The industry has sued cities that have adopted restrictions, but the challenges have largely failed.
‘That’s all I had’
For her part, Dixon had been due to pay up $3,355.42 on Jan. 2 to settle her loan, but she didn’t have the money, so she paid more than $300 to extend it. By Feb. 6, owing more than she had, she called the lending company to try to cut a deal.
She told TitleBucks of Texas that she would write a check for money she had socked away — $3,000 — if the company would give her back the title to her car.
“That’s all I had,’’ said Dixon, a tax preparer. She had hoped to settle the debt with a tax refund check that had not arrived.
General manager Chauncy Jones of TitleMax of Texas, doing business as TitleBucks, did not respond to repeated requests for comment.
Efforts to contact the Savannah, Ga.-based company were unsuccessful.
Norcross said he has repeatedly told the public to look for alternatives if they fall in to a debt trap.
“Look, if you borrow $300 and you feel like you … you can’t pay it back and you're just paying the $50 of interest and fees over and over and over again, look do that three times, and then walk back to the store where you got the loan and say ‘Look, I can't do this,’” Norcross said.
“Whatever financial thing happened, just go in and say: ‘Look, my financial situation is not the same today as it was when I borrowed the money, can we work something out. Can we do a payment plan?’”
If she could not pay in full, the only alternative for Dixon was to renew the title loan, she said.
As separate fees and interest charges mount, the Mansfield grandmother is likely to pay out more than $3,300 to borrow $2,994.95, based on the loan amount, prepaid finance charges and finance charges in the loan agreement. On Friday, she said she eventually repaid the loan in full amount.
But, looking back, she added, “I would not find myself in that again.
“I would do it differently,’’ she said. “I just rushed out on my own because of the stress that I was under.”
One study shows that the average Texan is about $40,000 in debt. Some fell prey to the easy money available through auto title loans, and that number is rising. In 2013, Texans paid as much as $360 million in fees to auto title lenders — $53 million more than in 2012. The Debt Trap is a collaborative project by theStar-Telegram , WFAA and theAustin American-Statesmanaimed at shining a light on loans that either help the economically disadvantaged or devastate them, depending on whom you ask. This installment explores car-title loans. Upcoming installments will look at reverse mortgages and student loans.