Imagine paying 300 to 450% on a loan. That's what you could end up paying over the course of a year on a certain type of loan. Several advocacy groups and lawmakers are working to more strictly regulate these loan businesses, but as Lisa Crane found out the loan industry is fighting back hard. Alabama's 13 investigates pay-day and title loans.
Belinda Plylar loves her 2008 hummer. It's worth about $20,000, so when she needed some quick cash to pay for an unexpected expense, she reluctantly decided to go to a title loan store. Plylar says, "I only wanted $1000…but they kept on and on and on about…the interest rate is so much lower if you did a couple more thousand and so I agreed."
The loan company took her title and a copy of her hummer key and Belinda got $3,000. The interest rate on the loan was right at 10% but what she didn't understand is that was for one month. So her monthly payment of $300 was for interest only. She made her first $300 payment and noticed the principal didn't move. "That's when I realized this is it! I can't afford this. There's no way I can do this," says Plylar.
And Belinda is not alone. According to the non-profit group, The Center for Responsible Lending, Alabama has the highest number of title lending outlets per capita in the country.
Alabama Representative Patricia Todd of the 54th District says, "You're paying back what you borrowed over and over again." Todd is sponsoring a bill that would limit the interest rate on payday and title loans to 36% annually, or 3% a month. It would also limit the number of payday loans a person could take out during a year and create a common database to enforce those limits.
For title loans, lawmakers want to give consumers more time to pay them off, increase reporting requirements and require lenders, many of which are pawn shops and online companies, to be licensed.
The bills in the house and senate have support from lawmakers on both sides of the aisle and are backed by a broad range of groups from the NAACP to The Federation of Republican Women to the AARP.
The group, Alabama ARISE, says they support the legislation because these short term lenders prey on the poor and desperate. "After a tornado or a hurricane, we don't let people charge $20 for a bottle of water even if somebody would pay it. We don't let people charge $30 for a gallon of gas even if somebody wants to pay it," says Stephen Stetson with ARISE Citizen's Policy Project.
We looked at the paperwork Belinda signed and it clearly says her annual percentage rate was right at 122%. But title and payday loan companies make short term loans, for two weeks or a month at a time, that's why they compute interest monthly not yearly. Max Wood owns 5 payday and title loan stores in Alabama. He's also the president of Borrow Smart Alabama, a group of more than 400 cash advance and title lenders in the state. He says these are meant to be short term loans and are smarter financial decisions than the alternative. "In many cases it's much better to do that than it is to overdraft a check, or maybe 2 or 3 checks," says Wood. According to Wood, the payday and title lenders are up front about the terms of the loans. But critics say short term lenders target people who don't know where else to turn.
Dozens of these store fronts open in clusters in high traffic areas like Parkway East and Green Springs Avenue.
A former manager at a payday and title lending store who didn't want to be identified told us, "People just felt like that was their last solution, they'd come in and we'd give them the money and they didn't ask questions, they were just glad to get it." She said even though clients were given several pages of loan documents, company leaders didn't want employees to volunteer too much information, so she felt like she was deceiving the customers. She added, "It's a never ending process once you get in it's very hard to get out of."
Bernard Hargrove got a title loan at title cash last October and paid it off in two months. He says it was such a positive experience he took a job at the company. "Having that company be there so that you can get that money that you need to take care of those urgent matters is very, very helpful and that's what we're trying to be…helpful and not harmful," said Hargrove.
The industry association also introduced us to other repeat customers who say payday and title loans helped them through short term financial hardships. LaKesha Peterson said, "It's good to be able to have a chance to be able to pay your bills or to do what you need to do for your children when you don't have it right there in your possession."
Industry leaders say if lawmakers succeed in capping their interest rate at 36% it would force the more than 1000 pay day loan stores in Alabama out of business. And that has happened in other southern states. In North Carolina, Arkansas and Georgia lawmakers passed interest rate caps ranging from 17 to 60% and in fact, the industry did pull out. Stephen Stetson with Alabama ARISE says, "If you can't make a profit at 36%, something is wrong. Your product is broken."
The industry is proposing a bill of its own that would refund profits from the sale of a repossessed vehicle after the loan, interest and expenses were paid. It would also allow for a 12 to 24 month payment schedule for title loans but because it wouldn't cap interest rates that would mean a $1,000 title loan over two years would cost the consumer $6,000 in interest. Critics say that bill doesn't go far enough and it would legitimize these loans under their own statute which would make them harder to legally challenge.
Industry leaders say eliminating payday and title loans would be taking away the only lifeline many people have in an emergency financial situation. Corolis Duncan is a former title loan customer. She says, "We're not going to have anybody to help us. It's like me, I have no credit, no bad credit but no good credit either so somebody needs to help."
Belinda ended up getting a loan from her credit union to pay off her $3,000 loan plus an additional $600 in interest two months later. Her advice is don't do it.
A similar bill died in the state legislature back in 2007. Proponents of industry reform say that was the result of a very strong and well funded lobbying effort and they are seeing that same strong pushback with these bills. And at this point in the legislative session chances of seeing these bills get out of committee are dwindling.
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