New law could backfire on debtors

Thousands may lose their cars if lenders close title loan shops because of a new state law capping interest rates.

By ADAM C. SMITH and SHELBY OPPEL

© St. Petersburg Times, published July 16, 2000

Lawmakers decided this was the year to protect Florida consumers and put an end to 264 percent interest rates for car owners desperate for fast cash.

Now Florida may be on the verge of seeing the unintended consequences of the long-fought battle to reform the auto title loan industry. Thousands of Floridians will see their cars repossessed this fall, the lenders say, as they close up their title loan shops and call in their loans.

"Come October, it's going to be crazy. People are going to be mad at the (title loan businesses) when they lose their cars, but they have no choice. The mom and pop shops aren't able to stay in business, and they need to get their money back to start some other type of business," said Laura Blake of Tampa-based Lighthouse Financial Group, which is closing its Florida title loan businesses but continuing to lend in other states. "I don't think the Legislature really thought about the repercussions."

The law takes effect Oct. 1, requiring $1,200 licenses for every title loan shop, and cutting annual interest rate caps from 264 percent a year (22 percent a month) to 30 percent annually (2.5 percent a month). Many title lenders have already stopped issuing new loans, started closing branches, and begun warning customers to pay off their existing loans before October or face repossession.

Before the Legislature clamped down, Florida had nearly 1,000 title loan businesses, offering quick and easy cash to people willing to sign away the title to their cars in exchange for a fast loan at 22 percent interest a month. Many of the borrowers have shoddy credit histories or can't find conventional lenders for loans less than $1,000.

Typically, the title loans are for 30 days, but consumers often renew them repeatedly, paying hefty interest rates without paying down the principal. For a $500 loan, consumers would commonly pay $660 in interest over six months, be no closer to clearing their debt, and still face the prospect of losing their cars if they fell behind.

Attorney General Bob Butterworth and countless other consumer advocates likened the practice to legalized loan sharking.

But now that the interest rate is about to be capped at 30 percent a year, most title lenders say they can't make it and have no choice but call in their debts.

"All loans must be paid in full by 9/01/00 or repossession will occur. Thank the governor," states the sign at Clearwater Title Loans on Missouri Avenue.

Clearwater Title Loans owner Roy Basmaci, who's moving into the charter speed boat business, said that he expects to sell his debts to an investor but that about 100 of his customers could lose their vehicles. "It'll be mayhem," Basmaci predicted of the weeks before Oct. 1.

At Auto Cash Title in Pinellas Park, owner Constantine "Dino" Margaritis said at least 200 of his customers in Pinellas County and Bradenton could lose their cars, though he is doing all he can to work with them and encourage them to pay off their debts.

"One of them just said to me, "You can't do this to me.' I told them, "You need to call your state legislator,' " said Margaritis.

One of his customers, a South Pasadena resident who has paid thousands of dollars on a $1,200 loan, called Margaritis "one of the nicest men I have ever met," although she sees no way to avoid losing her 1989 Jeep Comanche. She has called every state official she could think of for advice, but no one has a solution for her.

"I'm going to lose my truck because of this new law. I'm between a rock and hard place, and these lawmakers are pushing them together," said the disabled part-time supermarket bagger, who asked that her name be withheld because of embarrassment over her financial predicament.

The dire predictions of mass repossessions could be hyperbole from lenders angry at state lawmakers and eager to frighten borrowers into paying off their debts. Three dozen counties had enacted their own ordinances cracking down on title loans before the state passed its law, and consumer advocates are unaware of those ordinances causing big increases in repossessions.

In many of those cases, though, title lenders transferred their loans to shops in neighboring counties with loose or no title loan restrictions. A number of the county ordinances also allowed lenders to continue servicing the loans of existing customers.

"I don't think anyone can really say what the total effect will be," Assistant State Attorney General Jeffrey Jones in Tallahassee said of the new state law.

Don Saxon of the Department of Banking and Finance, which now regulates title lenders, said some title loan contracts may allow lenders to continue renewing loans at the old interest rate, but in many cases the lenders will have every right to repossess vehicles.

"If the company is going to enforce the contract and require satisfaction of the contract, the consumer needs to seek other arrangements (to find the money), and they should not wait until the due date," said Saxon, who said he can only hope thousands of vehicles are not repossessed.

Doreen Barker, a lobbyist for Florida Legal Services and staunch critic of the title loan industry, said advocates are hoping that since the end of the legislative session in May, title loan borrowers had enough time to pay off their debts.

She said that many title lenders have moved into the equally controversial payday loan business, and she predicted many lenders would flip their title loan debts into payday debts. In those loans, a company holds a customer's postdated checks as collateral for a short-term loan. With the assorted fees attached, critics say payday loans often effectively charge annual interest rates of more than 300 percent.

Some lawmakers are eager to target payday lenders next year, and in the meantime are not fretting about the title loan shops closing their doors.

"They were charging usurious interest rates and making money off the hardship of individual citizens," said Sen. Jack Latvala, R-Palm Harbor, key sponsor of title loan law in the Senate. "We functioned fine as a state before we had title loans, and we'll function fine after."

- Times researcher Caryn Baird contributed to this report.

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