Insta-Loophole: In Florida, High-Cost Lender Skirts the Law
Despite a ban on high-interest car loans, the nation's largest title lender is growing its business in Florida
Published: September 3, 2014
This story was co-published with The Tampa Bay Times.
When Florida lawmakers banned high-interest car title loans in 2000, then-Gov. Jeb Bush proclaimed that the new law would protect Floridians from lenders "who prey on the desperate."
But in the past three years, the largest title lender in the country has swept into the state, offering a new version of the loans that effectively allow it to charge the sort of sky-high rates the law was supposed to stop.
TMX Finance, which has opened 26 InstaLoan stores across Florida, skirts the ban on triple-digit interest rates by offering loans larded with costly and nearly useless insurance products.
TMX is clearly violating "the spirit of the law," said Alice Vickers of the Florida Consumer Action Network, a Tampa-based nonprofit advocacy group. Florida regulators should be cracking down, she said, instead of "giving them a pass."
TMX's refashioned loans are yet another example of how the nation's high-cost lenders have modified their offerings to circumvent city, state and federal laws designed to limit them. After Ohio prohibited excessive interest rates on short-term loans in 2008, payday and auto title lenders used a loophole to offer nearly identical loans under different state laws. In Texas, TMX subsidiary TitleMax has offered customers cash for free as part of a ploy to get around city ordinances.
From its Georgia base, the company now operates more than 1,470 stores in 18 states with plans to grow by more than 20 percent each year through 2017, according to a presentation made to a rating agency last year and obtained by ProPublica.
TMX officials did not respond to multiple requests for comment. Industry representatives often argue that high-cost lenders serve a vital function by providing credit to consumers who would not otherwise be able to obtain it.
In a basic 30-day title loan, consumers hand over the title to their cars for a loan ranging from $100 to several thousand dollars. At the due date, the borrower can pay just the interest and renew the loan for the principal. In Georgia, TMX's TitleMax stores often charge about 150 percent annual interest, according to contracts reviewed by ProPublica. If the borrower defaults on the loan, the lender can auction off the car.
Lenders like TMX derive most of their profit from customers who can't afford to pay off their loans and who renew them again and again. In 2009, a company executive testified in a court case that the company's typical loan is renewed eight times.
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