Advertisements and online listings for auto title loans make them especially attractive during the holiday season when many families need extra cash.
“I didn’t have a lot of money at the time, I wanted to buy Christmas presents, pay bills for my family,” said father-of-two Scott Sweetalla.
The Air Force veteran shopped around and thought he had a deal when he called Maximum Title Loans.
“And the gentleman who answered the phone asked me a few questions about my vehicle and then said ‘I can get you $2,000 for $150 a month’ and I thought, wow, that was awesome .”
But he also had to pay an extra $300 a month in interest. When Sweetalla fell behind, Maximum Title Loans called her referrals.
“In my case, they called them over and over and over again,” he said. “My sister doesn’t even want to talk to me anymore because of this.”
Maximum Title declined an interview request and would not comment on the terms of this or any other loan.
Seven months later, when Sweetalla could no longer make the payments, Maximum Title sent someone home.
“I woke up the next morning to go to work and my car was gone. My heart sank a little. I kind of imagined what it could have been,” he said.
As the number of auto title lending companies grows, so do the customers who don’t understand the risks.
“They keep going into debt because they believe it’s the only option they have,” said state Rep. Debbie McCune Davis, D-Phoenix. “I think we’re pushing these families into more debt and away from opportunities for themselves and their children.”
After the law allowing payday lenders to operate in Arizona expired in 2010, auto title loans filled a similar role.
“If you drive through certain neighborhoods, we know it’s like an economic red line. We know they’re looking for families with an annual income of $40,000 or less,” McCune said.
McCune said she was working with consumer groups to ask the legislature for tougher regulations to “tighten up some of this.”
“Anything that limits that availability will just force consumers to go to offshore lenders, tribal lenders, unlicensed lenders, maybe someone down an alley,” said Scott Allen, president of the Arizona Title Loan Association. “That is to say, it’s definitely not a benefit to consumers in any state, especially Arizona.”
Allen describes auto title loans as “fast, efficient and convenient.”
He said reviewers should talk to consumers who have had a successful experience with a lender and appreciate the service they provide. He made Michael Donahoe, a title loan client, available to talk about his loans.
“It’s always worked, I haven’t had any complaints about the fees,” Donahoe said.
Donahoe said he worked as a lawyer for 40 years, practicing administrative law for airlines and business aviation. Now retired, he says he does legal advice.
He said he had taken out eight title loans in the past 12 years and usually paid off the loans in 90 to 120 days.
“The best thing about Cash Time is that they’re really fast,” he said. “They make good profits on me. So we both win,” Donahoe said.
Federal regulators are working to make sure consumers understand the terms of their loans.
The Consumer Financial Protection Bureau, a federal agency created in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is considering a proposal to end “debt traps.” which would include advice to lenders on assessing whether or not a consumer has the ability to repay the loan.
“There are currently no federal rules that require lenders to determine whether or not the consumer has the ability to pay small loans like payday loans or car title loans.” said Christopher Peterson, special adviser to the director of the consumer office.
“We are very concerned about practices in the marketplace that appear to trap consumers in debt,” Peterson said.
The bureau plans to announce a notice of proposed rulemaking as early as 2016, followed by a 90-day public comment period. But there is no timetable for when or if a new regulation will come into effect.
In the meantime, the industry continues to grow. But it’s hard to know exactly how many auto title loan companies have replaced payday lenders in Arizona.
“Since the Sunset became active in July 2010, we’ve had an increase in sales financing licenses,” said Lauren Kingry, Superintendent of the Arizona Department of Financial Institutions. “However, it is difficult for us to determine whether these are payday lenders or whether these are companies interested in a simple sales financing license.”
The department also receives consumer complaints.
“Many complaints are resolved by simply discussing what was signed and discussing the details of the transaction without further action being taken by the consumer,” Kingry said.
Sweetalla is still looking for her car.
“I see a similar vehicle every now and then on the street and I’m like no. This is not mine.”
He won’t be looking for another auto title loan.
“The money you would get from these people is not worth what happens later.”