TO DODGE LAW, HIGH-COST LENDER OFFERS CASH FOR FREE
by Paul Kiel ProPublica
Alarmed by the explosion of high-cost lending in the state, cities across Texas have passed ordinances to prevent the cycle of debt that short-term, high-cost loans can create.
But some big lenders are finding clever ways around the laws 2013 like giving away cash for free.
TitleMax promises to “make getting cash easy!” To get a loan, borrowers with “good credit, bad credit, or no credit” need only turn over the title to their car.
In Dallas, San Antonio, and Austin 2013 which have all passed lending laws 2013 those loans have come with zero percent interest.
What’s the catch? After 30 days, the loan is due in full. If the borrower cannot pay 2013TitleMax’s average loan is for $1,300 2013 the borrower is sent to another TitleMax location outside of the city, where he or she can receive a new, unrestricted loan. That loan, states a contract given to one borrower, could have an annual rate as high as 310 percent.
Of course, the borrower would be free to renew the loan at that location 2013 over and over again.
“It’s a bait and switch,” said Ann Baddour of the non-profit Texas Appleseed. “The practice may not be illegal, but it’s definitely unethical and unconscionable.”
TitleMax declined to comment. Like other high-cost lenders, the company touts its products as an option for borrowers who might not qualify for other sources of credit.
An auto-title loan is similar to its better known cousin, the payday loan 2013 but larger and with more at stake. Typically, the borrower hands over title to her car and agrees to pay off the loan after one month. If she can’t do that, she can pay only the interest due and roll over the principal to the next month.
As with payday loans, the cycle can repeat itself over and over. A study by the Consumer Federation of America and Center for Responsible Lending found that the average borrower renews a loan eight times. A borrower who defaults risks having her car seized. (Disclosure: The Center and ProPublica both get significant funding from The Sandler Foundation.)
In six TitleMax contracts from Texas reviewed by ProPublica, the company actually charged an annual rate ranging from 145 to 182 percent.