photo by MICHAEL PARRISHLEAD STORY
SHARK ATTACK
Kicked out of other states, moneylenders are moving in for the kill, charging desperate Portlanders up to 300 percent interest.
BY NIGEL JAQUISS
njaquiss@wweek.com
LEAD STORY SIDEBARS:
Old Debts
Oregon's new breed of high-interest lenders aren't the first to squeeze desperate debtorsTies that Bind
The King of Lending Sets Up Shop in Portland
Over 1.35 million Americans filed bankruptcy in 1997, nearly 11,000 of them in Portland. Nationally, the numbers represent an increase of 20 percent from the previous year and more than 400 percent since 1980.
The repeal of Florida's usury laws in 1995 means
companies can
now lend at several times the rate that formerly constituted a third-degree felony. Annual interest rates have reportedly reached 1,000 percent in Jacksonville.
Consumer Credit Counseling Services, a local nonprofit agency, serves 1,500 local customers a month. The typical client is an employed 35-year-old who owes $17,000 to a handful of creditors.
In 1997, the nation's 6,000
credit-card issuers mailed 2.3 billion solicitations to prospective customers--nearly 28 for each American household.
At the end of 1997, Federal Reserve figures show that total credit debt in this country was $528.9 billion.
Non-traditional lenders have gotten a big boost from banking deregulation, says Tom Horn of the National Pawnbrokers Association.
Only four states specifically allow title lenders to charge 300 percent annual interest. They are Georgia, Alabama, Mississippi and Nevada.
Title lenders claim that they incur significant costs if forced to repossess and sell vehicles. One local company, Ca$hCo, has anticipated just such an inconvenience and set up its own used-car lot next door.
In some states, title lending is considered a pawn; the lender may keep all proceeds when selling a repossessed vehicle. In Oregon, lenders must return money left after the debt and costs have been paid.
When Kentucky cut the state's maximum interest rate from 264 to 36 percent earlier this year, Kentucky Title Loans, Inc., owned by Rod Aycox, reportedly threatened to repossess the vehicles of its 25,000 customers.
Life has not been kind to Ken Wood. Six years ago, a 300-pound bookshelf fell on the 39-year-old Multnomah Village resident, crushing bones and causing internal injuries. Self-employed and uninsured, Wood struggled for years to regain his health. In 1996, his 14-year-old son, Zebdiah, who had been designated a talented and gifted student, fatally shot himself. Battling physical and emotional pain, Wood struggled to take care of his elderly father, who suffered a crippling stroke, and his mother, who lost her vision and became suicidal. This year, he had to place both of them in foster homes.
Amid this personal turmoil, Wood tried to eke out a living servicing computers but constantly found himself on the verge of bankruptcy. "I've been behind the eight ball forever," he says.
Last month, his finances hit bottom. He frequently skipped meals because he was unable to afford food, but he couldn't continue putting off his utility bills. One night he saw a television commercial that promised fast cash--just what he needed. "I'd written a couple of checks," Wood says, "and I had to do something to cover them."
His checks were already in the mail, soon to be rubber. So on Aug. 25, he followed the commercial's prompting and took the title to his 1985 Blazer to Portland Car Title Loans at 5108 SE Powell Blvd.
Wood walked out the door with $500. In exchange, he signed over the title to his Blazer and promised to pay the loan back in 30 days--along with interest of $125, for a total of $625. Wood may be broke, but he's no fool. He knew he was paying a crushing price--a 300 percent annual rate of interest--but he had to have the money and quickly signed on the dotted line. "I really felt pressure to sign the contract without reading it because people were literally lined up behind me," he says. "I felt like I was signing up for food stamps. It was humiliating."
The agreement that he signed states that if Wood is a day late with his payment, his vehicle can be repossessed immediately and sold without further notice.
Wood is in a tough spot, and he isn't alone. Nationally, more people than ever before are in more debt than ever before. But a joint investigation by Willamette Week and KGW-TV has found that Oregonians are particularly vulnerable because of the state's lax lending laws. In the past three months 16 new title-loan offices have opened in Oregon, six of them in the Portland area. In addition to these operations, several applications from others are pending (see "Where the Loans Are," p. 28).
The companies coming here have been restricted in some states and barred from others. In Georgia, one of the companies, Title Loans of America, Inc., is being sued for loan-sharking.
Credit-card companies get criticized for charging interest rates in the high teens, but the car-title lenders who are opening businesses here charge more than that each month.
Spawned around the ghettos and military bases of the South in the early 90s, title lenders have been aggressively seeking new markets. The first such business to take advantage of Oregon's lax regulation of finance companies was Portland Car Title Loans, which was licensed in April. Northwestern Title Loans opened in July and now has six branches in Oregon. Northwestern is not only the biggest title lender in Oregon but also the most troubling. The company has ties to the nation's largest title lender, which may have connections to organized crime (see "Ties That Bind," p. 30).
These bankers to the desperate, the poor and the ignorant charge 300 percent annual rates of interest. And they do so with the knowledge and approval of regulators in Salem, who are issuing licenses almost as fast as the state prints lottery tickets.
Activists who have battled title lenders in southern states say we are making a huge mistake by allowing them into Oregon. "This industry preys on minorities, single mothers with no child support and military personnel," says Melissa Burkholder, director of the Consumer Law Center of the South.
Georgia attorney Jerry Lupa, who has sued several title lenders, says, "These guys are smart and devious shylocks. They're just so friggin' greedy you can't believe it."
In Florida, Attorney General Bob Butterworth spent the past two legislative sessions pleading unsuccessfully for a cap on interest charged by title lenders in his state. "These guys make the mob look good," he says.
Car-title lenders are held in such low regard that even pawnbrokers and used-car salesmen feel sullied by comparisons with them. "Our rates are high," says Phil Tobin, owner of H & B Jewelry and Loan in Portland, "but those rates are astronomical."
"These people are not part of the auto industry," says Monty King, director of the Oregon Independent Auto Dealers Association. "They're a part of the finance industry, and not a good one at that."
Portland has had a handful of high-interest finance businesses for several years (see "Old Debts," p. 26), some of which make a variation of title loans, but until now the city was free from the car-title loan operations that have plagued the South.
The business itself is fairly straightforward, and Wood's experience is typical. Customers sign over their titles in exchange for an amount usually limited to 10 to 20 percent of the value of the vehicle. Unlike most conventional loans, title loans are due in 30 days, which is an important limitation.
Unless they win the lottery, people who are broke today will generally still be broke in 30 days. One of the pitfalls of short-term borrowing, say those familiar with title loans, is that borrowers scrape up just enough cash to pay their interest every month, but don't pay off their principal. Burkholder tells of countless borrowers who roll their loans over, paying several times their principal in interest, only to miss a payment and have their vehicle repossessed.
Even those who pay their interest on time may get in trouble. Lenders can call repo men any time after the first 30 days if interest and principal aren't paid in full. WW and KGW didn't find anyone who had lost a vehicle to the new title-loan companies. But given their brief tenure in the state, that isn't surprising. Activists in other states--where, by some estimates, repo rates run as high as 30 percent--say it's only a matter of time before the horror stories begin here, as title lenders become nearly as ubiquitous as coffee shops. (In Florida, an estimated 620 title-loan operations have opened since title lending was legalized there in 1995.)
There's only one explanation for such growth. The profitability of title lending is staggering. If a lender charging 300 percent keeps the money moving--continuously relending the interest--$1,000 at the beginning of the year will become $14,551 by the year's end.
In Georgia, Lupa is suing title lenders under the RICO organized-crime statute, accusing them of collecting unlawful debts, i.e. loan sharking. RICO defines an unlawful debt as a loan that carries an interest rate of more than two times the usury rate, or maximum allowable interest rate, of the state in question.
Lupa's case is currently pending in Georgia's 11th Circuit Court. In the meantime, he has successfully gone after lenders in Georgia for failing to disclose their rates and terms--a practice which is already occurring here.
Federal truth-in-lending regulations require that interest rates be quoted on an annual basis. Wood says he was quoted a monthly rate when he got his loan. The 300 percent figure was eventually disclosed, but only when he was ready to sign the documents.
In order to see how the businesses operate, WW and KGW visited and called offices of both Northwestern and Portland Title Loans. Clerks at both companies quoted loans at 25 percent, which is the monthly--not annual--rate.
"The way the industry misleads people is non-disclosure," Burkholder says. "They don't quote interest rates in annual percentages like they're supposed to."
In some cases lenders do more than withhold the truth about their lending rates. Last week a KGW producer had a conversation with a clerk at the Northwestern Title Loan operation at 2834 N Lombard St. The clerk explained that her company charged 300 percent annual interest because "That's what we're required to charge by the state."
Representatives of Northwestern Title Loans and Portland Auto Title Loans declined to be interviewed. But the owner of a similar company says that he and others who charge high rates of interest provide a service by lending money to those whom nobody else will touch. "I think it's in the consumer's interest," says Michael Rosenberg, owner of Ca$hCo Financial Services, Inc. "Consumer protection groups may not agree, but when you need $300, where else are you going to go?"
Burkholder finds Rosenberg's arguments self-serving. "The loans are highly secure," she says, pointing out that title lenders typically advance only a small percentage of the vehicle's value and hold the legal title. For the consumer, on the other hand, the risks are enormous. If somebody doesn't have 300 dollars today, Burkholder asks, what are the chances he'll be able to pay back 375 dollars a month from now?
Car-title lenders are coming to Oregon for a simple reason: Unlike other states, we've rolled out the welcome mat. Title lending is prohibited in 11 states, and others--such as Kentucky and West Virginia--have recently slashed the interest rates lenders can charge.
Facing a shrinking market in the South, title lenders looked to the West. Washington law bars them, and last year, despite title lenders' intense lobbying effort, the California legislature voted to keep them out. But in between those two states sits Oregon, a mecca of regulatory apathy.
All the title lenders needed to do to get licensed by Oregon's Division of Finance and Corporate Securities was pay 375 bucks and fill out some forms. Title lenders can slide into the state so easily because Oregon's usury law is as toothless as a retired hockey player. In 1981, after years of high inflation, the Legislature gutted the state's usury law that until then had capped the rate of interest lenders could charge. Fortunately for title lenders, the Legislature's revisions left loopholes the size of Crater Lake in what is supposed to be a consumer-protection law.
Despite well-documented abuses in the title-lending industry in other states, nobody in Salem seems overly concerned. In fact, the state is not only allowing these companies into Oregon but, during the application process, certifies that they are filling a need in the neighborhoods they invade.
Jim Krueger, who oversees finance companies for the Division of Finance and Corporate Securities, says his office has no plans to try to reign in the title lenders. "We don't regulate what they charge," he says, "just what they disclose."
Krueger is taking some action, however. In the coming legislative session, he will propose amendments to the Consumer Protection Act that will separate title lenders from the more traditional finance companies. Still, his proposals will not address interest rates at all. "People philosophically think the state should stay out of that kind of regulation," Krueger says. "As long as disclosure is in place, it's up to the consumer to decide."
Krueger's statement is perplexing considering that his division closely regulates the state's licensed pawn shops. Heavy regulation explains why there are only 32 legal pawn shops here instead of 700-odd, as there are in Georgia. Under Oregon law, pawn shops can charge a maximum of 3 percent interest per month on the loans they make and have to wait 60 days--much longer than the title lenders--before selling their collateral.
Consumer activists elsewhere have turned to state attorneys general to go after title lenders. Ed Benett, a local lawyer, is pessimistic about the prospects for that kind of aggressive action in Oregon. "The people in the Attorney General's office are referees instead of fighters," he says. Indeed, Oregon Attorney General Hardy Myers says that until his office receives a significant number of complaints, action against the title lenders is unlikely. "My position would be that [title lending] is presently unregulated," he says, "but that's a question that should be examined by the Legislature."
Oregon's failure to protect its citizens from title lenders doesn't surprise Portland consumer activists.
The onslaught of the lenders is just another example of the state's disregard for consumers' rights, says John Beer of Automotive Mediation Services, a company that helps customers to resolve complaints against car dealers.
Speaking from his 25 years of experience as a car salesman, Beer says Oregon is well-known in automotive circles as a playground for sleazebags and rip-off artists. In his role as a negotiator for consumers who feel they've been cheated, Beer has already received a number of complaints from title lenders' customers.
Given the reluctance of state administrators to crack down, Oregon consumers' best bet may be their lawmakers. "People should let their legislators know that the title lending business is unacceptable," says Jason Reynolds of the Oregon Consumer League.
One local politician is angered by the invasion of the title lenders, whom he sees as preying on his constituents. "This is just insane," says state Rep. Frank Shields (D-16). Shields wasn't aware of the title lenders operating in his district until notified by WW, but after reviewing materials collected for this article, he vowed to introduce legislation in the upcoming session. "If other states have outlawed it," he says, "we ought to be able to as well."
originally published September 2, 1998
