Lender takes all in repo cases

Lender takes all in repo cases
The cost is high and so is the risk for borrowers who post car titles as collateral for quick cash.

These storefront signs beckon to more than 60,000 people a day driving along Tara Boulevard in Jonesboro. It's a faded stretch of massage parlors, a tattoo shop and a DUI school on a street whose name evokes antebellum gentility.

It also was Rod Aycox's launchpad to the top of one of the most controversial and highest-priced credit industries in America: automobile title lending.

Aycox was 24 years old when he opened his first title lending store on Tara. He wasn't quite the first title lender. He still isn't quite the biggest. But no one has done more to spread title lending across the country from its Georgia roots. Now a 38-year-old suburbanite on a low-carb diet, juggling a demanding job, a wife, two children and a house in Alpharetta, Aycox has become his industry's most impassioned evangelist.

"I love the business," he says. "I enjoy the business. I believe in the business. . . . My business is very fair, upfront and decent."

The loans, defined in state law as pawn transactions, are made in exchange for a car title and a spare set of keys. They come at a hefty price: 25 percent interest a month, which works out to an annual rate of 300 percent.

That rate turns a $500 loan on the first of the month into a $625 debt at the end of the month. It is five times as high as Georgia allows for most regulated loans.

If a borrower is even one day late with a payment, the lender may repossess the car — using the borrower's own keys — and pocket the vehicle's full value. Even if that amount is several times greater than the loan balance, the borrower gets nothing.

Yet, when lawmakers made Georgia the first state to sanction title lending in 1992, they did so in the name of reform.

About half the states do not permit title lending. But 23 states followed Georgia's lead in embracing the industry. Two states later had second thoughts and severely restricted the loans, while most authorized interest rates as high as Georgia's.

Most also adopted regulations to monitor title lenders and to ensure that they treat their customers fairly, which includes refunding any money left over from the sale of repossessed cars.

As a result, Georgians have no way to determine how many loans are made, how many end in default, or how many borrowers lose their cars to repossession and, consequently, their jobs because they can no longer get to work. No one even knows how many title lenders exist.

This business environment obscures the financial devastation experienced by poor, desperate and unsophisticated borrowers who often seek title loans for quick cash. It's part of a regulatory landscape that, consumer advocates say, keeps many Georgians imprisoned in debt.

They are divorced parents and women escaping abusive relationships. They are business owners who need a quick hit of cash, and blue-collar workers who are late on their light bills.

They are people like Felicia Scrubb, a 26-year-old single mother of three from Clayton County. She borrowed $450 from Aycox's company, Atlanta Title Loans, last July to pay rent and utilities. Soon she was borrowing from the rent and the utilities to pay the $112.50 in monthly interest on the title loan.

In November, Scrubb couldn't make her payment. So she slid $25 under the title company's door, hoping to forestall the repossession of her car. She regarded the pale yellow 1992 Oldsmobile Cutlass Ciera as key to her survival. Without it, she didn't know how she could get her three boys, ages 1, 3 and 6, to day care and school, or herself to her job as a home health aide.

On the morning of Dec. 22, Scrubb called the police to report the car stolen. It turned out that a repossession company working for Atlanta Title Loans had taken it during the night.

"I cried and cried and cried," Scrubb says. "I had to stop. It was going to get me nowhere. If I cried all the time, my little boys would wonder what is wrong."

The title loan was supposed to tide her over to better times. Instead, it put her into a crisis.

A neighbor lent her a 25-year-old pickup to get around. About 6:30 in the morning, Scrubb would load her boys into the truck's single bench seat so she could drop them off. But the truck leaked oil and often wouldn't crank. For more than a week, it wouldn't run at all, leaving her with no way to get to work and no pay for the days she missed.

Last Tuesday, a reporter for The Atlanta Journal-Constitution informed Aycox that Scrubb would be featured in the newspaper. Two days later, he told Scrubb she could have her car and title back.

"It was so weird," says Scrubb, nevertheless grateful to have her car again. "I don't know exactly how he said it, but he said I could always come back to Atlanta Title Loans.

On a warm Friday morning, customers drive up to Atlanta Title Loans in dented pickup trucks and decade-old Nissans.

Dressed in a blue polo shirt and dark gray pants, Aycox has a round, boyish face and a full head of sandy hair. He appears comfortable leaning against the counter during a rare visit to his original store.

Like the 150 others he operates in 18 states, including 20 in Georgia, it is painted in flashy colors: jonquil yellow and Fire Island red, shades he picked out. He sips from a large Starbucks cup as he chats with borrowers who come in to make payments on their loans.

A middle-aged man wearing an American flag T-shirt nervously asks for an extension. Sure, Aycox says. He does not mention that additional interest will accrue. Nor does he ask when or how the man intends to pay. With a few keystrokes on a computer on the counter, and with even fewer words, an employee extends the man's loan 30 days — at an additional 25 percent interest.

As customers drop in, Aycox asks whether they're satisfied with the service they receive.

He lends them an average of $340, but he'll make loans of as much as one-half the wholesale value of a borrower's car. Typically, the car is 6 to 12 years old, worth $800 to $1,500. A customer must own the vehicle outright and fill out an application showing a job or other reliable income source. Getting a loan takes about 10 minutes.

Loans come due in 30 days, but they can be extended indefinitely, with another month's interest applied to each extension. After 90 days, the law cuts the monthly interest rate to 12.5 percent. But Aycox's company requires borrowers to continue paying an amount equal to 25 percent every month, with half going to the principal and half to interest. On average, Aycox says, borrowers pay off loans in 87 days.

Of the 250,000 loans Aycox's company makes across the country each year, he says, about one in 20 ends in default. When customers don't commit to a payment schedule or extend loans by the 15th day after the loans come due, Aycox hires a repossession company to pick up the cars. It's an easy task; the law requires no court approval of repossessions, and borrowers' spare keys are kept in a filing cabinet in a back room, just in case.

Aycox sells repossessed cars at a wholesale automobile auction. In most states where he operates, he has to give the borrower whatever cash is left over after the debt is satisfied.

He acknowledges that he profits on some repossessions. Nevertheless, he says, after paying the repo company's fee and the auction company's commission, he loses an average of $125 each time.

Consumer lawyers question his math. Dennis Goldstein of the Atlanta Legal Aid Society says his clients often lose cars worth two to three times the loan amount. He describes allowing lenders to keep collateral worth more than they're owed as "scandalous."

"They are licking their chops for you to default on your loan," Goldstein says. "They lick their chops at the opportunity to accept collateral many times greater than the amount of the loan, collateral they can keep upon default."

One of his clients, Willie Hampton, 52, of Riverdale, borrowed $3,000 from a Jonesboro title lender, E Pawn, in December 2002, using the title to his 2000 Cadillac Escalade as collateral. Hampton had bought the luxury SUV with a medical malpractice settlement. Its wholesale value at the time of the loan exceeded $21,000.

Hampton made payments for six months, but defaulted on the loan after the tools he used for his yardwork business were stolen. He owed about $4,300 at the time. The lender took his Cadillac, sold the vehicle and kept all the proceeds. Hampton sought help from Atlanta Legal Aid, but the law gave him no recourse.

Now he drives a beat-up 20-year-old flatbed Ford pickup truck. It is missing its radiator grill and rearview mirror; the passenger door sometimes opens by itself when he turns a corner. It's nothing like the Cadillac. But after the repossession, he says, it was all he could afford.

"That man just robbed me," Hampton says of the lender. "The only thing keeping me from going to jail is Jesus Christ. I don't want to kill that man."

E Pawn's owner, Marcus Abercrombie, did not respond to repeated requests for an interview. An attorney who represents Abercrombie declined to comment.

Like most Georgia title lenders, Abercrombie did nothing more than the law allows — and nothing less.

With few exceptions, all title loans cost the same — the maximum allowed by law. No matter how many lenders provide a supply of money, no matter how many borrowers create a demand, the price remains static.

So title lenders compete through maximum visibility. Aycox seeks customers not just with brightly colored, well-lit stores on busy thoroughfares, he also advertises on daytime television — talk shows and courtroom programs, mostly — and on radio stations that play rock and hip-hop music.

Aycox says these appeals bring in hard-working, financially responsible people who sometimes have trouble borrowing money because they have "lesser credit."

"Christmas is a wonderful time of year for us," he says. "People are buying presents. Vacations — the first of June is a wonderful time of year for us."

Aycox was still a teenager in 1985 when Hugh Austin became the father of title lending.

Austin had lost his job in the contract bonding business and was looking for a new line of work. "I got this idea," he says. "Why couldn't you pawn a title?"

In the law at the time, he says, "there's nothing to say you could, there's nothing to say you couldn't."

So in Mableton, not far from his home in Marietta, Austin opened what may have been the nation's first automobile title pawnshop. Instead of giving out cash for hocked merchandise, as pawnbrokers had done for centuries, he made high-interest, short-term loans backed only by car titles.

Unlike traditional pawnbrokers, who needed space to store their customers' goods, Austin had to hold on to nothing but a piece of paper and a set of car keys.

His idea was an instant success that, he says, appealed to a broad range of borrowers.

"We have bank vice presidents who come in here and borrow $500 to $600 and don't want their wives to know," says Austin, 62, who still runs six title loan stores. "There are people who are involved with drugs, who have gambling problems. . . . We lend to a lot of people who are sorrier than dirt.

At first, pawnbrokers didn't like Austin's twist on their business and questioned its legality. Austin sought help from a friend from Bremen, his hometown: Tom Murphy, then speaker of the state House of Representatives.

"I went to Speaker Murphy to say I was in this business and I was having trouble with competition," Austin says. "Speaker Murphy put me and Billy Randall together."

Randall, then a Democratic state representative from Macon and a lawyer, had become concerned about the growing title lending industry after representing clients who had paid exorbitant interest rates. In 1992, he was chairman of the House Special Judiciary Committee and, like many title loan customers, he is African-American.

Randall acknowledges that, because of his race, the title loan backers wanted him to sponsor a bill legalizing their industry. He had to choose, he says, between helping an industry he detests or letting a chance to impose at least minimal restrictions slip away.

"I went into this with my eyes open," Randall says. "Back then, I could not have put them out of business. There was no way. I had no hope of doing that. I did what the African-American community has done for many years: I took the lesser of the two evils."

John Thomas, a title pawn lobbyist, assembled a coalition to push the bill: traditional pawnbrokers and a few consumer lawyers, the conservative editorial board of the old Atlanta Journal, and the Governor's Office of Consumer Affairs.

All repeated anecdotes about title lenders who charged as much as 800 percent annual interest.

"A lot of legislators were against us," Thomas says. "We sat down and got all of the consumer groups on this deal. . . . We needed a rate that would not put [title lenders] out of business. But we needed a lower rate than what [some] were charging."

Barry Reid, then the administrator of the consumer affairs agency, publicly described the proposal as "a step in the right direction," a comment interpreted as an endorsement. He now says he didn't mean it that way.

"We were all very well-intended," he recalls. "The problem, of course, is the devil is often in the details."

The bill's backers presented the high interest ceiling as a compromise. At the time, the law capped interest on pawns at 2 percent a month, or 24 percent a year. But the handful of title lenders already in business routinely added hefty service charges in addition to the interest.

Nevertheless, the House approved the legislation 149-6. The Senate passed it unanimously. On May 8, 1992, then-Gov. Zell Miller signed the bill into law, and title lending had the imprimatur of the state of Georgia.

In 1990, Aycox was a college dropout and a used car salesman with uncertain prospects. One day he got a flier hawking software to manage a new business called title pawn. He didn't buy the software, but he bought into the concept.

Stretching his credit cards to their limits, he rented a storefront on Tara Boulevard, put up a banner and waited for borrowers to find him.

Aycox worked solo behind the counter for two years, logging 100-hour workweeks. After the General Assembly approved title lending, Aycox expanded in Atlanta and to Birmingham.

He joined with a pair of investors in 1993 to form a company called Title Loans of America. The Atlanta-based firm soon became America's largest title lender.

Aycox says his partners put up the money and he provided the expertise to open about 200 stores in 15 states. Expanding into some states meant little more than filling a regulatory vacuum; those states' laws neither specifically allowed nor barred title lending. Opening in other states, however, required mastering local politics.

In five states, Aycox appeared before legislative bodies, advocating laws that would permit title lending.

In other states, he met with banking regulators, encouraging them to interpret their rules to allow his business to operate profitably — that is, by charging triple-digit interest rates.

Almost everywhere he lent money, or wanted to lend money, Aycox spent money on political contributions.

Since 2000, Aycox, his companies and close relatives have donated $313,900 to 130 state and federal candidates and political committees in 10 states, according to an analysis of databases compiled by the Center for Responsive Politics and the Institute on Money in State Politics. About $90,000 of those donations went to Georgia campaigns.

Earlier, news reports in Tennessee identified Aycox as the largest individual contributor in that state's elections in 1998, three years after legislators there had legalized the title lending industry.

"I support good government," Aycox says, "and I want to support good government through my eyes."

Aycox says he doesn't give to influence decisions affecting his business. In fact, in some states where he has contributed, officials have rebuffed his industry.

Kentucky, for instance, enacted a law in 1998 that authorized title lending — but at no more than 36 percent interest a year, far less than Aycox and other lenders had been charging before the law passed. Aycox and the rest of the industry withdrew from the state.

In Florida, after lawmakers in 1995 approved interest rates of 22 percent a month, or 264 percent a year, consumer advocates began pressing for repeal.

"It took us about four years," says Lynn Drysdale, an attorney for Jacksonville Area Legal Aid. "Every year, we would go to the Legislature and they would say, 'We didn't mean to make it 264 percent a year. We thought we were making it 22 percent a year.' Then the title lenders would get to them and nothing would happen."

Finally, the U.S. Navy, which has a massive presence in the Jacksonville area, joined the fight, Drysdale says.

"They said, 'Look, we have people who are deployed in ships and they are talking to their wives and husbands back home and they are scared to death that the car is going to be repo'd.' "

In 2000, Florida lawmakers slashed annual rates to 30 percent, or 2.5 percent a month.

Aycox and other title lenders said they could no longer make money in Florida and left the state, some moving across the border to Georgia. Florida is better off without them, Drysdale says.

"We went from seeing dozens of them to seeing one or two," she says. "The problem has been very significantly decreased."

In Oklahoma, Aycox seemed to have everything in place seven years ago to win approval for title lending.

He hired two top lobbyists: a former state attorney general and a former House speaker. He spread campaign contributions. His lobbyists persuaded the influential chairman of the House banking committee to sponsor the legislation.

But as the committee was about to consider the bill, an Oklahoma City television station reported that one of Aycox's partners at the time had once been accused of drug trafficking and the other had been linked to organized crime figures. Neither had been convicted of crimes.

Still, the report led to "discussion and debate and name-calling" during a committee hearing, says the bill's sponsor, former Rep. Bob Weaver, a Democrat from Shawnee.

Opponents already had complained that high-priced title loans would prey on the poor, making them even more reliant on government services to survive. After the television news story aired, Weaver says, they began equating title lending to criminal activity.

"There was just too much controversy," Weaver says. He let the bill die without a hearing before the full House.

Later that year, Aycox sold his interest in Title Loans of America. He started his own company, Select Management Resources, based near his home in Alpharetta, and opened stores under the names Atlanta Title Loans, Loanmax and North American Title Loans.

He employs 415 people, including 25 at the corporate headquarters on Mansell Road. He estimates that he has a 70 percent market share everywhere his business is well-established.

Three days a week, he travels to his stores across the country — on one of his company's two jets.

Aycox, who declined to be photographed for this article, has cultivated a cautious, low-key image that disarms even his adversaries.

"I was like, 'This is loan-sharking. Look at what you are doing to these people.' "

But Lupa says he was impressed with Aycox after meeting him. He has since represented his company on some corporate matters.

"I think he is just a businessman saying this is a way to make money," Lupa says. "He never seemed to me like he was some kind of hoodlum, just a go-getter, go-getter, go-getter guy."

Standing in the back room of his Tara Boulevard store, as a woman at the front counter asks the manager for a loan, Aycox poses what he considers to be the essential question: If his customers couldn't borrow from title lenders like him, where could they go?

"People who borrow [on their titles] probably can't go to Citibank for the money," he adds. "If someone's a critic of our industry, I guess they don't want my customers to be able to borrow money."

To consumer advocates, Aycox's argument echoes a familiar refrain that so-called "fringe" lenders use to rationalize high-cost practices. In truth, advocates say, poor borrowers are better off without the money.

"There's some credit that shouldn't be extended," says Yolanda McGill of the Center for Responsible Lending, an advocacy group based in Durham, N.C. "If they can't service the loan, they shouldn't get the money. It's not responsible lending."

Now Bibb County's chief magistrate judge, presiding over evictions, bad-check cases and default judgments, Billy Randall sees the impact of Georgia's weak consumer protection laws.

"We are not a state that looks out for small people as it relates to consumer purchases," he says. "I think we have got some of the worst consumer laws in the nation."

One of them, he says, is the result of his 1992 title lending bill. But he says he never wanted the measure to be the final word on the subject.

"I felt that having some kind of regulation was better than having none. Politics is the art of compromise. I got what I could get at the time."

Now, Randall says, "I think the law should be changed so it doesn't keep people in economic bondage."

Aycox says he would not oppose some changes. He says he would refund any excess equity in repossessed cars if the law required it. He would accept state licensing of his industry.

But cutting the interest rate would put him and other title lenders out of business, Aycox says. Compared with other forms of lending, which often are loaded with credit insurance policies and other charges in addition to interest, title loans are a bargain, he says. "With me, what you see is what you get. I have you clearly understand how much it's going to cost you per month and charge a very fair rate."

During a lull in customer traffic one morning on Tara Boulevard, Aycox stands at the counter and uses a pen and paper to make his point.

He scrawls "$100" to represent the principal of a hypothetical loan, then adds a month's interest and reaches the bottom line: $125. No insurance premiums. No hidden fees.

And even with the interest rate dropping after 90 days, over a year the $100 loan would cost $187.50 in interest — or the car the borrower put up as collateral.

Still, ever the evangelist, Aycox is convinced he can sell his business to anyone willing to listen. After all, he has sold title lending to lawmakers, regulators — and borrowers — for 14 years.

IN GEORGIA A title loan accrues interest at 25 percent a month for the first three months: $500 principal $125 first month's interest $125 second month's interest $125 third month's interest TOTAL: $875

The same loan would cost the borrower 2.5 percent a month: $500 principal $12.50 first month's interest $12.50 second month's interest $12.50 third month's interest TOTAL: $537.50

What are they? Hundreds of lenders across Georgia make short-term loans, usually for a few hundred dollars, after borrowers hand over their car titles.

Who gets them? People who own cars outright and have jobs or other reliable sources of income, but who can't obtain loans from traditional sources because of their credit histories.

Who benefits? Under a 1992 state law, title lenders initially may charge 25 percent interest a month -- an annualized rate of 300 percent. On most regulated loans, state law considers annual interest rates above 60 percent to be usury.

Who doesn't? Poor borrowers whose cars can be repossessed if they are even one day late on a 30-day title loan. When a lender repossesses a car, he retains its full value, even if the value is greater than the loan balance.

Who looks out for the consumer? No one. Georgia exercises almost no regulation over the title lending industry, and the state Supreme Court ruled that borrowers have no standing to sue over the interest rate.

How does Georgia compare with other states? Georgia spawned the title lending industry, which spread to 23 other states, mostly in the South and West. But states that followed Georgia's lead into title lending don't allow lenders to keep the full value of cars over and above the amount of the loan, and they adopted regulations to supervise the industry. WHAT THEY'RE SAYING

"The pawnshop statute permits finance charges . . . at 25 percent per month for the first 90 days of the transaction. Had the Legislature intended to cap pawnshop transaction interest at 5 percent per month or less, it could have done so." -- Georgia Supreme Court, upholding the state's title lending law, 1999

--------------------------------------------------------------------------------

"That rate is not too high for the risk we take. With traditional pawn, the collateral is locked up in a vault. . . . With title pawn, it is driving out there on the street." -- John Thomas, lobbyist for Georgia's title pawn industry

--------------------------------------------------------------------------------

"The interest rates on these loans . . . are so exorbitant that debtors frequently must take out additional loans just to pay the interest on the initial lien, sending them deeper and deeper into debt." -- U.S. Rep. Clay Shaw (R-Fla.), 2000, as Congress adopted a resolution urging stronger state regulation of title lending

--------------------------------------------------------------------------------

"A single mother needs $200 for rent. What if she doesn't have that $200 to pay the rent? My little $200 keeps her OK." -- Hugh Austin of Marietta, the "father" of the title loan industry

--------------------------------------------------------------------------------

"No. No. No." -- Nicole Coppage of Riverdale, on whether she would ever again take a title loan. In court papers, she alleges her lender tried to repossess her car after she had paid her loan.

"The people who would get a loan under these conditions are the same people who blow their welfare/SSI checks at the casinoes every month."

True, but when considered as a whole they make up a tiny fraction of a 1 percent, IMO. I'm in poor neighborhoods all the time. The major contributing factor, IMO, is lack of education, the debilitating affects of being up to your eyes in debt while living weekly from paycheck to paycheck and the last resort these places offer for those with lousy credit.

Very true. It's either borrow the dough, drive the car and do the drugs or let the crackman front for you while he "borrows" your car for a day/night and you walk home from the crack house.

(generic you, not "you")

this industry is largely set up to prey on people in active addiction

Oh, please. I lived in small town Georgia from 1985-2000. I saw these businesses spring up in the mill towns. People who were making a subsistance wage and were always one broken arm or cold winter snap from being poor were their customer base. If you were an addict and pawned your title knowing there was no hope of paying it off, then you were a small part of their business.

The last thing I want the government doing is protecting meth-heads from themselves.

Then by your implied definition the interest 15% on credit card is a usury if the risk "uncompatibly" smaller (like 1%). Is it?

Absolutely.

Of course, there is no such think as 1% risk on an individual. Think logically - if a company like GE or IBM borrows money at 4% and a country like Switzerland borrows money at 3.5%, what private individual would qualify as a 1% risk on an uncollateralized loan?

A lot of people out there are extremely irresponsible and a huge credit risk, for one thing and for another, a lender always runs the risk that someone will declare bankruptcy and they will lose their entire loan.

If the terms of the loans are not being accurately disclosed or explained to the customers, then he should be punished. But otherwise, caveat debtor.

There is a line between a market driven industry and consumer exhortion.

Of course, there is the aspect that no one out a gun to these people's heads and forced them to pawn the titles.

That being said, the hypocrisy of the our governments amazes me.

By laws passed "for our own good":

We must wear seatbelts.
We must carry auto insurance.
We must not use cell phones while driving.
We must not allow smoking in a business we happen own.
We cannot light up in public places-parks, the beach, etc.
We must be carded to by a mixed drink regardless of our age. (In Alpharetta, were this man lives, everyone must be carded--even if they are seniors. If you take 80 year old Grandma out to dinner, Grandma cannot have that glass of wine if she forgot to bring her ID. That may have changed, I stopped eating in Alpharetta when they passed that stupid law. Took my $$ elsewhere.)

The hypocrisy is our governments pass laws restricting our activities "for our own good" yets turns it's head when oversight is needed. It's all about the $$$$$$.

There's no hypocrisy.

The states have a monopoly on the numbers racket.
Loan sharking is a bone they've tossed to business because they can't think of a moral reason not to.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.