Title Loan and Pawn Shop Companies Thrive in Georgia
Inside Subprime: Sept 26, 2018
By Grace Austin
As reported by Kevin G. Hall, Michael Woodel, Laura Corley and Ben Wieder of the DC bureau of McClatchy news service, title-pawn shops are doing booming business in Georgia. Many of them are concentrated in lower-income neighborhoods and close to military bases, such as Robins Air Force Base and Fort Benning – both near Warner Robins in central Georgia. (The Military Lending Act currently provides protections for military personnel, although the Trump Administration has shown signs of loosening those protections in recent months.)
The McClatchy team notes, “Three of the top national title-pawn companies are headquartered in Georgia – TMX Finance, Select Management Resources and Community Loans of America.” Their analysis of federal court records showed that Georgia leads all states in which these “big three” companies are located in bankruptcy filings.
Title-pawn shops, like storefront payday loan operations, provide short-term, high-interest loans. But in the case of title loans, borrowers put up the title to their vehicle as collateral. If they default on the loan, they risk losing their car – which may be the only way they have to get to work in the first place. With pawn shops, borrowers leave an item of value (jewelry or home electronics, for example) in return for short-term cash – often a fraction of the real value of the item. If they cannot repay the loan on time, they risk losing the item.
What makes it worse in Georgia is that the title-pawn industry is virtually unregulated. As noted by McClatchy, if consumers go to the website for the Georgia Department of Banking and Finance and look up “Pawnshops/Title Pawn”, they will be greeted with a large disclaimer: “The Department of Banking and Finance DOES NOT license or have any jurisdiction over pawnbrokers or pawn transactions. The following information is for informational purposes only to direct consumers to the appropriate agency for resolving their issue or complaint.”
So how high can the interest and fees go? McClatchy’s team cites the case of Willie Pearl Gray, who went to a title loan dealer in December 2015 to secure a loan of over $4,000 against her 2010 Toyota Camry. She stopped paying in 2017, arguing that she was being “fleeced” and is still fighting attempts to take her car. Her only recourse has been to report to the local police in Columbus, Georgia, and as she told McClatchy, “They really acted like they really didn’t care what I was saying.”
Receipts Gray showed the McClatchy team illustrate what a debt trap title loans can be. For example, a payment she made on February 5, 2016, for $440 took only $3.64 off the principal of the loan. Her monthly interest payments in spring of 2016 were nearly $400 alone
In fact, McClatchy’s report shows a screenshot of a contract from TitleMax for a different customer in central Georgia in which the word “loan” doesn’t appear, even though it cites finance charges and annual percentage rates (APR). In fine print, the contract reminds borrowers that failure to pay can result in the title-pawn company seizing their car or “loss of the pawned item.”
At a minimum, if they haven’t paid back the loan with interest and fees at the end of the 30-day initial period, a new contract goes into effect. McClatchy’s report shows that over the course of a year, a borrower could have repaid as much as $5,750 on an initial loan of $2,000 in order to keep title to their vehicle.
Why would anyone resort to such a loan? When faced with immediate needs – lack of groceries, medical bills, the imminent disconnection of utilities – title-pawn shops in Georgia fill the gap for the working poor. But the debt too often adds to the overall financial burden and makes it even harder for them to climb out of the hole – to say nothing of the threat of harassment from the companies when borrowers fall behind in payments.
McClatchy further reports that the state of Georgia keeps no records of auto repossessions and has no clear data on the title-pawn industry. But a study by the nonprofit consumer advocacy group Georgia Watch and Georgia State University’s Student Innovative Fellowship found at least 755 title-pawn locations in the state.
The study further stated that interest rates for car title loans can be as high as 300 percent. They also noted that another study by the Consumer Financial Protection Bureau (CFPB) found that one in five title-loan borrowers have their vehicles seized for failure to pay debt. As quoted by McClatchy, Beth Stephens, senior director for public policy at Georgia Watch, said “This is an industry that’s really preying on a community, really preying on young people who may not have had a bank account before or a financial product.”
Where should you turn for a loan instead of title-pawn shops? The Georgia Department of Law’s Consumer Protection Unit refers to title-pawn loans as “fringe banking,” and advices “Look for the lowest interest rate from a bank or credit union. Consider a loan from family or friends.”
And if you need help figuring out how to handle your debts, you might also want to consider The National Foundation for Credit Counseling. They can provide references to financial resources in your area, including financial literacy training.
Read the all Georgia Subprime Reports and check out the following reports including: