Indiana ponders car title lenders

The Indiana Legislature is on the verge of welcoming a lending industry that makes controversial "payday lenders" look as conservative as mainstream banks.

Title lenders, which make loans using a borrower's car title as collateral, would be able to charge up to 22-percent interest per month

The bill has already emerged from a Senate finance committee. It is opposed by consumer groups and by the Indiana Department of Financial Institutions, which regulates statechartered banks and consumer credit.

Opponents warn that title lending euphemistically advertised by some as a "motor vehicle line of credit"-is the last thing needed in a state that has ranked at or near the top in personal bankruptcies and home foreclosures in recent years.

They're concerned title lending could even dwarf payday lending in scope because borrowers need provide little more than a valid car title to qualify. There are about 350 payday loan offices in the state.

"This product has that potential," said Judith Ripley, director of the Indiana Department of Financial Institutions.

Those defaulting on payday loans-loans secured by a post-dated check cashed after a borrower's payday-can be sued to recover the outstanding balance and interest.

But default on a title loan "and you lose your car," said J. Philip Goddard, deputy director and general counsel for the department. "The consequences are greater."

Without a car, many defaulting customers won't be able to get to work, to the grocery store or to the doctor, said June Lyle, the AARP's associate state director for public policy.

"The potential in terms of the financial hardship of this is quite significant," Lyle said.

And not just to the borrower. A number of employers in surrounding areas such as Hamilton County already struggle to find enough workers from Marion County to fill low-wage jobs. A car is often essential for these workers because Indianapolis' bus system ends at the county line.

A need for easy cash

But the bill's sponsor, Sen. Johnny Nugent, R-Lawrenceburg, said of

title lending: "Without question, this definitely fills a need for some

folks who have limited choices."

Title lenders and payday lenders tend to attract customers who don't have savings or credit available to meet short-term cash needs. Many have household incomes of less than $25,000.

Consumer groups say title lending serves an even more desperate clientele, such as a person whose checking account has been canceled by a bank because of excessive bounced checks.

With title lending, borrowers wouldn't need a checking account. They'd have to provide a signed statement declaring income, employment and expenses. Nugent's bill states that title lenders need only a "good faith belief' that a borrower can repay.

Customers can be in and out the door with the loan in as little as 20 minutes, according to reports on the industry centered in the South, where title lenders are as common as Moon Pies and RC Cola.

And, as in previous legislative debates over payday lending, title lenders are pointing accusing fingers at banks as the bad guys while trying to justify their own arguably predatory lending practices.

"We ... challenge those who oppose our business model to offer a better alternative... and serve those who need credit. As the banks show by their collective behavior every day, it's hard to put deed to words," Rod Aycox, president of title lender LoanMax, said in a recent statement defending his Alpharetta, Ga.-based chain.

Aycox's title lending chain is behind SB 383, according to sources at the Department of Financial Institutions.

Last year, The Atlanta Journal-Constitution painted Aycox in unflattering terms in a report on title loans. One piece described how Aycox drove up in a $128,000 Mercedes to one of his 150 stores, as customers who'd arrived in junker cars bellied up to the counter for cash.

LoanMax came under more scrutiny following a recent series of national television ads starring the Rev. Al Sharpton, the controversial political and civil rights activist.

It wasn't the first time LoanMax owner Roy Aycox has been linked to controversial characters.

According to a number of media reports, Alvin Malnik got involved in Aycox's previous loan company, Title Loans of America, in 1991. MaInik told the Palm Beach Post that he later bought out Aycox, who went on to form LoanMax.

Malnik had previously served as an attorney for Meyer Lansky, a mob financier who helped set up casinos. The New Jersey Casino Control Commission in 1980 denied a casino license to Malnik, citing his long association with Lansky.

Malnik has pointed out in interviews over the years that he was never convicted of a crime. But connections to him have haunted Aycox.

The Nashville Tennessean in 1999 reported that Aycox was the top individual campaign contributor to the state Legislature, which legalized title loans, and wrote, "the shadow of organized crime has descended on Tennessee's political landscape."

Aycox did not return phone calls.

Aycox has aligned with powerful political muscle in attempting a foray into Indiana. Among lobbyists testifying on behalf of the title loan bill is John Hammond, co-chairman of Ice Miller's Public Affairs Group and one-time aide to former Gov. Robert Off.

Also greasing the skids for Aycox is John Keeler of Indianapolis law firm Baker & Daniels and a former state representative.

Agreement sought

SB 383 sponsor Nugent said he hopes details can be ironed out among the parties.

The Department of Financial Institutions remains concerned about borrowers' ability to repay.

Officials also said the legislation has little restriction on the number of times a loan can be renewed-meaning customers can rack up hundreds of dollars in interest charges during a six-month period that nearly equal the amount borrowed.

They also decried the risk.

"You could lose your car over a $50 loan you fail to repay," said Mark Tarpey, supervisor of the department's Consumer Credit Division.

"My main concern is that people need to know what they're getting

into," said Rebecca Haynes Bordas, an instructor at Purdue

University's Marion County Extension Service.

"If you don't have the money now, what makes you think you're going to have the money down the road, plus onefourth of it again [in interest]?"

Ripley points to a statement in 2000 by then-Florida Attorney General Bob Butterworth, declaring that the state's 1995 title lending act "was the worst piece of legislation ever passed by the Florida Legislature."

Florida later repealed its 1995 law that allowed title lenders to charge up to 264 percent APR. It was replaced with a provision capping interest at 30 percent per year, according to a report by the Center for Responsible Lending and Consumer Federation of America.

The Department of Financial Institutions said that if title lending is legalized here, it should contain similar caps on an APR basis.

When the payday industry entered Indiana, lenders were permitted a finance charge of $33 per transaction. But many customers regularly renewed their loans and wound up paying triple-digit rates on an annual percentage rate basis. The Indiana Supreme Court in 2001 ruled payday lenders couldn't charge more than the maximum 36percent annual interest rate under the state's consumer credit code, resulting in a retrenchment of an industry that once had 550 stores statewide.

SB 383 does contain some consumer provisions. One is a 20-day notice before repossession of a vehicle when a customer defaults.

Another provision requires that any surplus amount from the sale of a vehicle, above money owed the title company, be returned to the borrower.

Lenders also may not contract for attorney's fees or threaten to seek criminal prosecution to collect on a loan.