Cracking down on car title pledge lenders

By MARC PERRUSQUIA
Friday, February 09, 2007

Out of work after an auto accident, Anita Gray needed cash to pay her bills. With nowhere else to turn, she pawned her car to Golden Title Loans, where repayment rates reach 264 percent a year.

Borrowing $1,000, Gray paid Golden Title more than $4,000 over the next 18 months _ more than she'd paid to buy her used, 1997 Saturn in the first place.

And still she owed $1,200. The principal never went down despite paying $220 a month _ and that didn't include a number of late fees and other penalties.

"They're ripping people off," said the 40-year-old hair stylist who sued Memphis-based Golden Title for alleged gouging.

Gray is one of three plaintiffs named in the Shelby County Circuit Court lawsuit that Memphis Area Legal Services hopes will galvanize support to reform practices among Tennessee's car title pledge lenders.

As a second prong in that strategy, the Memphis and Shelby County Anti-Predatory Lending Coalition has drafted a bill in the General Assembly. It would trim fees that title pledge lenders can charge.

"It's an industry that really preys on desperate people," said Legal Services attorney Webb Brewer, who likened title pledges to "evergreen loans" that keep rolling over month after month.

"They've got to come up with $220 every month just to keep from losing their car."

Golden Title owner Doug Golden has said his firm operates legally and ethically, but he wouldn't discuss developments. "I'm just not going to make any comment on that," he said.

Under state law, car title lenders can charge monthly fees of 2 percent interest and a 20 percent administration fee _ 22 percent a month _ when a borrower pledges the title of an automobile as collateral.

The bill being filed by state Sen. Roy Herron and Rep. Larry Turner would limit the 20 percent administration fee to the first month.

After that, lenders could charge only the 2 percent interest a month. Also, after three months, a portion of what the borrower pays would be applied to lower the loan principal.

Herron already has filed a bill this session that would limit the number of months that a title pledge loan can be rolled over. He said he hopes the best aspects of the bills survive and become law.

In addition to the monthly fees, Golden Title has charged customers late fees and other penalties for "calling off" a planned repossession. With the aid of internal business documents, The Commercial Appeal first reported those practices by Golden Title in 2004. A consumer advocacy lawyer told the newspaper then that he considered the late fees and call-off fees to be illegal because they weren't spelled out in loan contracts.

In the suit filed Wednesday, Legal Services lawyers contend that late fees and call-off fees charged to Gray and others are illegal because they exceed the 22 percent-a-month cap. Golden Title also is violating the Tennessee Consumer Protection Act by engaging in unfair and deceptive acts, the suit alleges.

Following the 2004 articles, Legal Services filed a complaint with the state against Golden Title, but there was a problem: The Department of Financial Institutions had no authority to regulate title pledge lenders. That changed with legislation passed in 2005 that allows DFI to conduct periodic examinations of title pledge lenders.