Stephen Franklin
Tribune Reporter
June 22, 2008

Rosa Mobley never imagined her debts would swell so large.

There were times when the 66-year-old widow, who struggles by on Social Security and her pension as a school crossing guard in Chicago, fell behind on her gas, electric and mortgage payments. But she always tried to pay something toward her auto title loan, since she feared losing the car that has given her freedom.

"I cried a lot of nights," said Mobley, who lives in suburban Dolton.

From the more than $1,000 she borrowed in a series of loans, she wound up paying more than $4,000 over 28 months, according to officials with the lender, Community Loans of America.

Among the cashed-out economy’s trapdoors, the auto title loan can be one of the most costly as well as risky. When you fall behind on an auto title loan that typically charges 300 percent annual interest, you can lose your car even though you may have paid far more than you borrowed.

Of the 16 states that permit high-interest auto loans, only Illinois sets no limit on the interest rates, and it is the only state without a single consumer protection linked to auto title loans, according to the Woodstock Institute, a Chicago-based community think tank.

Hoping to exert control over auto title firms, the state set down rules in 2001 covering loans up to 60 days. But most lenders shifted their loans to 61 days or longer to evade the rules, and the state hasn’t changed the law, according to the institute.

Auto title loan companies say they serve people in need, but some consumer advocates say they can operate too aggressively.

"In Illinois auto title loans are absolutely unregulated. And that creates a cowboy mentality. They think they can get away with anything and often they do," said Alon Alop, a lawyer with Legal Assistance Foundation of Metropolitan Chicago.

He points to a coming Cook County Circuit Court case involving an auto title loan company that seized a woman’s car hours after assuring her that she could wait until the next day to pay off the loan. She had arranged to sell her car the next day and use proceeds to repay the loan.

Since they began spreading across the U.S. more than a decade ago, auto title loan firms have expanded and even begun doing business online and often at twice the 300 percent annual rate charged at their stores, according to the Consumer Federation of America.

Some states crack down
But auto title firms are starting to face more controls, said Jean Ann Fox of the Consumer Federation of America.

Iowa last year, for example, capped auto title loans at 36 percent annual interest following similar moves by Oregon, Florida and Kentucky.

Tennessee began monitoring title loan companies for the first time in 2006, and the number of firms soon dropped from about 900 to 700, said Greg Gonzales, commissioner of the state’s Department of Financial Institutions. Until then the firms were allowed, for example, to keep whatever they gained from selling clients’ repossessed cars, even if the sale price far exceeded the clients’ loans, Gonzales said.

Auto title loan firms set up business in 2004 in Kansas by "operating under a loophole" in state law, saying they were offering a revolving line of credit, said Kevin Glendening, an official with the Kansas Bank Commissioner. Under pressure from the state, the firms reduced interest rates on loans from 460 to 300 percent yearly, he added.

But Glendening, who was concerned by a state survey that showed the companies were repossessing 2.5 cars a day, has been unsuccessful in getting the state to restrict the firms.

An Alabama Circuit Court ruled two years ago that the 300 percent interest charged by auto title firms in that state violated the Equal Protection Clause of the 14th Amendment. A similar battle has erupted in Wisconsin over high interest rates as well as firms’ requirement that borrowers join auto clubs that cost as much as $150 a year.

Wisconsin Supreme Court Justice Louis Butler wrote in a ruling that "charging 300 percent for a loan to those who can ill-afford it is ridiculous, unreasonable and unconscionable."

But Bob Reich, president of Atlanta-based Community Loans of America, brushes off such criticism. His company is the nation’s largest provider of auto title loans, with stores in 30 states, and it’s the biggest operator in Illinois, with 60 stores.

Reich said efforts to cap auto title loan rates do not reflect the prevailing mood of borrowers across the U.S. "I don’t think it is a burden if our product is used wisely."

And like most auto title lenders, he said such loans are meant only for a short term that will not lock borrowers into heavy debt. The average loan from his company lasts six months.

But that’s not what happened with Mobley, of Dolton.

She had planned to pay her loans on time. Instead, she kept paying as the loans rolled over. Desperate to escape the burden, she contacted Dolton officials who put her in touch with Lynda DeLaforgue, co-director of Citizen Action/Illinois. She, in turn, contacted officials with Community Loans of America, the parent firm of Illinois Title Loans Inc.

"The fact that she was paying down and getting new loans made it a more complicated situation. This is clearly a rarity," Reich said. Company officials looked into the case and forgave the loans.

Afraid to go out
And then there’s Joe Ledford of Pontiac, Ill., who so fears having his 2003 Dodge Neon repossessed, he’s kept it in his garage for months.

. He is 30 years old and lives on Social Security disability benefits. Facing eviction, he took out a $965 loan at 304 percent annual interest in July 2006 with Title Cash of Illinois Inc., which is owned by an Alabama-based firm that has 330 stores in 13 states.

That would have worked out to a $1,688 payment in three months. But Ledford didn’t have enough for the final payment of $1,206, and the loan has swollen.

Ledford said he has tried to reach a compromise, but John Johnson, the regional manager for Title Cash of Illinois, said Ledford has "not made a sincere" attempt.

Johnson also is a firm believer in the service that auto title lenders provide.

"We know the customer is desperate when they come to us and that is why we don’t do any credit check," he said. "If we don’t help them, nobody’s going to help them. We help way more people than we hurt."

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