Auto-title lenders peel into Ohio

Plain Dealer - August 20, 2013

The Plain Dealer’s Sheryl Harris tells readers to “Prepare for the invasion of the title snatchers.” She’s got it right.

Ohio’s reputation as a state that greets predatory lending with a yawn has encouraged TMX Finance, the nation’s largest auto-title lender, to expand into Ohio.

Auto title loans are the first-cousins of payday loans, which the state officially outlawed in 2008 but has unofficially allowed to go unchecked ever since.

Like payday loans, auto title loans are meant for people who are broke but who own their cars outright. Both types of short-term loans carry triple-digit interest rates. But instead of borrowing against their next paycheck, consumers pledge their cars.

Loan amounts are bigger – and so are the stakes.

Harris describes the outsized risks of putting “one’s wheels” on the line, including getting to work if the car is taken away.

Auto title loans have the same patterns of repeated borrowing typical of payday loans. “Driven to Disaster,” a report by the Consumer Federation of America and the Center for Responsible Lending, found the average title-loan borrower took out eight loans. That type of loan churning is an indicator that consumers are unable to pay off their loans – no surprise since a consumer’s ability to repay isn’t taken into account in this type of lending.

It doesn’t look good, though. Ohio law doesn’t specifically allow auto-title lending, but Harris notes that lenders claim it fits under other statutes. Based on past history, lenders won’t be challenged in Ohio, even though voters spoke clearly in 2008.

So similar lenders saw their chance. Auto title lenders Ace Cash Express and LoanMax created outposts in the state last year. TMX Finance, a Georgia company with an aggressive growth strategy, just announced it’s moving in. It told the Department of Commerce it plans to open 12 TitleMax stores in the Buckeye State, including two in Northeast Ohio.

Ace Cash makes two-week auto-title loans under the state’s mortgage lending statutes. The Department of Commerce granted LoanMax and TitleMax credit services organization licenses. The credit services law prohibits license holders from directly issuing loans, limiting them to acting as a kind of broker. It’s unclear what relationship the companies have with the entities that ultimately provide the loan.

Harris mentions the Policy Matters report on auto-titling lending, Keys for Collateral, which

… makes it clear the legislature needs to get out ahead of what could become a payday-size problem and specifically prohibit auto-title lending.

But the legislature, like commerce, seems content to sit in idle. After all, it’s not their wheels that are at risk.

Auto-title lenders peel into Ohio
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