Title Loans: The Problem? The Solution?
I commented here about the recent circuit court decision holding that failing to regulate the interest charged on title loans was an equal protection violation. The decision has apparently led to new efforts to eliminate “predatory lending.”
I don’t know what to think about these efforts. Some folks really get the shaft on these deals. Take the guy from the circuit case as an example:
In his Aug. 25 order, [circuit court judge] Robinson found in favor of James Waites, who sued Express Enterprise Inc. in February 2000 after he paid $900 in interest on a $400 title loan he took to buy medicine for his wife — and still had his truck repossessed for failure to pay down the principal. . . .
Waites, a St. Clair County resident, took out the loan against his truck title in 1998, agreeing to pay 25 percent interest a month, or 300 percent a year. Express Enterprise repossessed and sold the truck when Waites quit paying after making nine consecutive $100 payments, saying the $900 had only gone to interest.
No doubt this guy got a raw deal. But is “predator” the right word for the lender? Waites needed the money. He also might not have been able to get it any other way. In other words, these places do provide a necessary service: Allowing people with low income to obtain loans. Because low income equals high risk of non-repayment, the interest rate is going to be higher than it would be for a member of the middle class. There is nothing wrong with any of this.
I also have issues with calling someone a predator whose “victim” acted voluntarily. No-one held a gun to Waites’s head; he voluntarily made the deal. I’m not one of those people who thinks will power is the great equalizer, that we each should get full credit, or full blame, for our actions because we each have an unfettered ability to choose. Your power of choice is only as powerful as the options from which you have to choose. This guy, I’m sure, did not have many options: The banks were not beating a path to his door. Even so, the lender did not coerce him, his circumstances did. The worst that can be said of the lender is that they took advantage of his circumstances.
If there is a problem with title loans, I think it has to do with inequalities of information. As a lawyer, I can hear someone like Waites coming into my office and telling me how the lender is stealing his money, how he’s done paid almost a thousand dollars on a four hundred dollar loan, how they keep telling him he still owes the money, how he can’t keep paying out that money every month, that he’s paid them more than four hundred dollars, that he wants me to help. Then I would look at the agreement and see that what is happening is exactly what the agreement said would happen. This potential client, though, did not understand the loan agreement.
So maybe instead of capping the rates, the legislature ought to pass some type of mandatory disclosure law. Something that would require the agreements to be written in plain english and in normal sized type. They should include examples of how the payments will be applied to interest and principle, and what happens when the payments do not cover the interest.
That way everyone knows exactly what they are doing when they sign on the dotted line. Loans will still be available for everyone, and no-one can claim to have been cheated.