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Title loan offices returning



Last modified: Sunday, August 05, 2012
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When state lawmakers capped the interest rate on quickie, no-credit-check, small loans at 36 percent in 2009, Roy Hutcheson shuttered his New Hampshire storefronts as lawmakers had hoped. So did Philip Heitlinger. They'd been collecting 300 percent interest, and the law change put them out of business, they said.

''Typically, our loans are $300 to $500, and you simply cannot process or service those loans at that (36 percent interest) rate,'' said Hutcheson, of Alabama.

Two weeks ago, Hutcheson reopened three branches of Title Cash for New Hampshire and has three more coming. Heitlinger, of Florida, just reopened a Carbucks of New England branch in Nashua and may add other locations in the state.

What changed? The lawmakers - and the interest rate.

Early this year, the Republican-led Legislature reversed the interest rate cap on title loans, overriding a governor's veto to do it. Now, lenders can charge a monthly interest rate of 25 percent, the equivalent of nearly 300 percent over 12 months.

Lawmakers attempted to do the same with payday or installment loans this year but failed to override Gov. John Lynch's veto of that bill. That veto has had the effect Lynch wanted.

The state's largest payday loan lender, Advance America, has not reopened the 25 New Hampshire locations it closed after the interest cap passed and won't unless the cap is lifted, said Alex Kotrabus of Dennehy and Bouley, the company's lobbying firm.

A payday or installment loan is secured with a signature and a bank account. A title loan is backed by a signature and a vehicle title. Otherwise, they work much the same way. There is no credit check or verification of a borrower's claimed income, and a borrower can get the loan immediately.

Under the new title loan law passed this year, lenders can loan a person up to $10,000 but they cannot lend a person more than 35 percent of their total gross income. On the other hand, lenders do not verify a borrower's income claims.

The new law allows lenders to renew the initial 30-day loan for only 10 months. The lender can charge 25 percent interest each month. A borrower, however, must pay at least 10 percent of the loan's original principal each month.

That is meant to protect borrowers from never paying off the principal.

If the borrower cannot do that, the lender can find them in default and take the car. But Heitlinger said lenders are more likely to choose the other option: Reduce the amount on which they charge interest.

For example, on a $1,000 loan, Heitlinger could charge 25 percent interest the first month on the entire $1,000. If the loan is unpaid at month's end and the borrower renews it, Heitlinger could charge interest on only $900. The next month, he could charge interest on only $800, and so on.

If the lender ultimately takes a borrowers' car for nonpayment, they can sell the car and keep what they are owed. But they must return any additional sale money to the borrower.

''This is for the customer's protection,'' Heitlinger said.

Carson said that was intentional. ''There are more protections for the consumer in the bill than before,'' she wrote in an email. ''Also, very clear instructions are given at the time the loan is taken out so the consumer knows just exactly what they are required to do and pay on the loan.''

Expensive option

Title loans are undeniably an expensive way to borrow money, Hutcheson and Heitlinger said.

''I tell people, 'Go to your church, family and friends,' '' Heitlinger said. ''Absolutely try that first. Friends are free.''

These loans, Heitlinger and Hutcheson said, are for people who don't have friends or family with money to loan. And a bank won't write someone a small loan to cover the bills in a bind. ''A credit union will do it, but only for someone with great credit,'' Heitlinger said.

They said title loans are meant for a person who needs money quickly and for a short period of time.

Since the change to title loans took effect in March, three title loan lenders have returned to the state with licenses for 15 locations, according to the state Banking Department. A fourth opened a Seabrook office in February, just before the law changed.

Richard Arcand of that department said there may be other licenses awaiting investigation and approval. Hutcheson's experience confirms that. He said it took the state nearly four months to approve his license.

''It's very rigorous,'' Hutcheson said.

''They know more about me than I know about myself.'' Heitlinger agreed. ''They made it quite difficult to get a license, which is fair.''

In addition to Hutcheson's Title Cash of New Hampshire and Heitlinger's Carbucks of New England, LoanMax LLC is back with licenses for eight locations. LoanMax, headquartered in Georgia, is the only title loan lender with a Concord location. Calls to its Loudon Road office and its Georgia headquarters were not returned.

Sen. Sharon Carson, a Londonderry Republican, was the main sponsor of the bill lifting the interest rate cap.

''I believe that this legislation was important because this industry offered choices to the people,'' Carson said in an email.

Carson said that when the 36 percent interest cap ended the industry here, she heard from people who had relied on short-term loans.

''While they wished they hadn't had to use this type of a loan, they were glad that it was available to them because they could not qualify for a conventional loan,'' Carson said. ''It was their experiences with this type of loan that led me to file the legislation.''

Rep. Lee Quandt, an Exeter Republican, was a cosponsor on Carson's legislation.

''Very simply, it was another option for people,'' Quandt said of title loans.

He said when the Legislature capped the interest rate in 2009, there were assurances that the state would come up with an alternative so people could get short-term loans quickly. Commercial banks don't offer that option, especially for people with bad credit.

Those alternatives never materialized, so Quandt favored lifting the cap, he said.

''They took an option away from people, and (opponents) like to think (title loans) are driving people to welfare,'' Quandt said. ''According to the numbers we were given, the average person getting a loan was making $40,000 a year, so they aren't going to be on welfare. There was so much misinformation.''

Cycle of debt?

When Lynch vetoed lifting the interest cap on title loans, he said he did so because allowing lenders to charge ''excessive'' interest charges would hurt families by locking them into a cycle of debt. He and welfare administrators predicted those families would be forced to turn to their towns, communities and churches for money to pay the rent, mortgage and grocery bills.

He offered an example: A $500 loan against a car would cost the family $1,187 in principal and interest over the maximum 10-month loan period. And because lenders do not check an applicant's credit history or verify their claimed income, the risk is great, Lynch said. The lender doesn't really know if the loan can be repaid.

The consequences were too great, Lynch concluded. A family could lose its car, leaving the parents unable to get to work. Joining Lynch in his opposition was the state attorney general's office, lawmakers from both parties, churches, New Hampshire Legal Assistance and the state's welfare officials.

Because the title loan lenders have been back in the state for just a few weeks, it's too early to tell whether those fears will prove true, welfare administrators and others said last week. But they do remain.

''What typically happens is folks go back to the same lender to pay off an initial loan, and that is how they get stuck in the perpetual debt cycle with upward of 300 percent interest,'' said Dan Feltes, who, with Sarah Mattson, lobbied against the bill for New Hampshire Legal Assistance. ''Most people end up in tough situations like failing to pay their rent and risking eviction or failing to pay their mortgage or failing to pay for other necessities because they are stuck in the debt cycle.''

Carson said she understands those concerns.

''These types of loans should not be taken out unless one is really needed,'' she said in her email. ''I would urge people who are having difficulty to check with their local social service agency to see if they qualify for assistance or to contact their creditors before they take out a loan.''

Who uses them?

The lenders argue the concerns are unfounded.

Heitlinger, part owner of Carbucks of New England, operates in Georgia, Delaware and South Carolina in addition to New Hampshire. The last thing he wants, he said, is to take possession of a borrower's car.

''It's more work, No. 1,'' Heitlinger said. ''And I lose a potential customer forever. We work with people because we don't want (their cars). We want them to be successful. And if they need us in a month from now, we want them to come back.''

The Center for Responsible Lending, a national nonprofit that opposes payday and title loans, says that's true. According to its research, the vehicle repossession rate is 10 percent. Lenders don't want the car, the center says, because they'd rather keep a borrower in perpetual debt and paying high interest rates.

When asked who uses his title loans and why, Heitlinger described his first client this year in New Hampshire. A woman was getting divorced and was waiting for an increase in the monthly payments from her ex-husband, Heitlinger said.

''She borrowed not an insignificant amount and a week later made a significant payment toward the interest and to reducing the principal,'' he said. ''It cost her a pretty small amount of money to borrow money for a week,'' he said.

Hutcheson said his clients are in similar, temporary financial predicaments.

''If you are a house builder . . . and have bad weather and you don't get the house to where the bank will give you an advance on a construction loan, the people working with you still have to get paid on Friday,'' he said. A short-term title loan can bridge the gap, Hutcheson said.

Borrowers have also included small-business owners who run into a small crisis or Realtors awaiting a commission on a pending sale. ''They typically pay those loans back in two weeks,'' he said, and don't incur the 300 percent interest rate that comes with a longer loan.

Heitlinger and Hutcheson said there's another myth that plagues their industry: The notion that people use title loans more in a bad economy.

''If the economy is down, people are not comfortable borrowing,'' Hutcheson said. ''If they feel comfortable about their ability to pay and have a good job and feel good about the economy, they borrow money.''

Tracking complaints

It's difficult to determine how much business these small lenders have done in New Hampshire or how their track record has been with customers.

The Banking Department was unable to provide the Monitor the number of loans written or the total value of those loans for this year or years past.

Complaint records are largely sealed under state law.

According to department records, there have been 53 complaints filed against five payday or title loan lenders since 2002. Two, against New England Auto Finance, which opened in Seabrook just before the law changed, were filed this year.

The difficulty comes in evaluating those complaints because the department cannot provide information about the complaints or say whether the company was cleared or found to be at fault. The only other way to evaluate a company's complaint history is to see whether the department has taken enforcement action against a lender.

But even that provides a limited answer. Ingrid White, a lawyer with the Banking Department, said the department takes enforcement action only if the lender and complaining customer cannot resolve their differences.

The department has taken enforcement action against one company, New England Auto Finance in June, for failing to provide the department updated information about its branch managers. The company acknowledged the failure and rectified it, according to the department's records.

(Annmarie Timmins can be reached at 369-3323, atimmins@cmonitor.com or on Twitter @annmarietimmins.)'