ATLANTA – Channel 2 consumer advisor Clark howard says Georgians looking to borrow against the value of their vehicle should understand that the loan can be very attractive if it is from a pawn shop.
“It’s hard for me to stay calm about this because it makes me so angry,” Howard said.
Howard said that desperate people often turn to pawn shops. These small dollar loans come with high interest rates.
“Almost always at 300 percent,” Howard said.
Griffin resident Mark Walls said Channel 2 action news that he had no choice when he pledged the title for his 2007 Chevy Trailblazer. After an accident kept him from work for two years, his credit plummeted.
“I lost everything. It took about a year and a half for Social Security to kick in and the income to come in. From there it’s just a fall,” Walls said.
When the opportunity to open his own forklift repair business presented itself, Walls was hopeful, but he needed the money to buy some equipment. His bad credit prevented him from getting approved for a loan at a bank or credit union, so he borrowed $ 2,000 on the value of his SUV at an interest rate of 22% each month.
“It was $ 400 a month for three months, then it was supposed to go down. I got behind on a payment and had to turn around and pay $ 700 interest on it, ”Walls said.
After months of payments, Walls had paid nothing for the actual loan.
“It’s very stressful and with them adding to it I’m about to have a nervous breakdown,” Walls said.
In Georgia, laws protect consumers from high interest rates on installment loans, which are loans of $ 3,000 or less. These types of small dollar loans are capped at 50% per annum.
Liz Coyle is with consumer advocacy group Georgia Watch, and she said Channel 2 action news that pawn shops in Georgia are not regulated like installment loans.
“In current Georgia law, title pawns are treated as a pledge of your grandfather’s watch. They’re not regulated like a small dollar loan, like an installment loan, ”Coyle said.
Coyle said the securities lending industry is concentrated in low-income neighborhoods where they know people are vulnerable.
“And what happens most often is that the consumer can’t make the payment and the first time after the first thirty days and they keep renewing that loan,” Coyle said. “And before you know it, it turned into a $ 500 loan for your car title emergency that cost you $ 5,000 years later.”
According to the Center for Responsible Lending (CRL), Georgians pay title lenders $ 199 million annually in fees and 1 in 5 borrowers who get a title pawnshop have their vehicle repossessed.
Kimberly Toole said it wasn’t just the debt that bothered her, but the lack of transparency in the title pawn industry.
After an illness brought her stepfather to a retirement home, she had to take care of her finances.
“I knew his bills were coming due, he had been in the hospital for over a month. So I go into the house and find the receipt for that title pawn and I was shocked, ”Toole said.
Toole took almost $ 3,000 from his own retirement to pay off the debt. She then devoted herself to warning consumers about the dangers of securities lending.
“Knowing that people end up owing so much more money than they borrowed breaks my heart,” Toole said. “People are doing this because they have a need.”
It was then that she met State Senator Randy Robertson, a Republican from Columbus. A law enforcement veteran, Robertson was familiar with the securities lending industry.
“As I started to explore these pawn shops, I started to realize that there were a lot of good Georgians working in these companies, but these business models are predatory and I can never justify a interest rate of 150 to 300%. Said Robertson.
Last week Robertson introduced the Motor Vehicle Title Loan Act. If passed, the bill will regulate pawn shops such as banks. Interest rates would be capped at 36%.
“If they want to operate a business in Georgia, they have to operate it the way banks run their businesses, credit unions run their businesses, even the way payday loan companies run their businesses,” he said. Robertson said.
The walls couldn’t agree more.
“It would be great for everyone. I had no other choice. I had nowhere to go, ”Walls said.