Although state lawmakers banned high-interest car title loans in 2000, the county’s largest title lender swept into Florida over past three years, with a new version of the loans allowing it to charge the sky-high rates the law tried to stop.
TMX Finance, with 26 InstaLoan outlets in Florida, evades the triple-digit interest rate ban by offering loans with substantial, costly and nearly useless insurance products, writes Paul Kiel of ProPublica.org.
TMX is openly violating “the spirit of the law,” says Alice Vickers of the Tampa-based nonprofit advocacy group Florida Consumer Action Network.
Instead of “giving them a pass,” Florida regulators crack down, she added.
Modified loans from TMX are one example of how high-cost lenders have adapted their products to circumvent limits placed by city, state and federal laws. Ohio had prohibited excessive short-term loan interest rates from payday and auto title lenders in 2008, but a loophole allows companies to offer nearly identical loans under different state regulations.
TMX subsidiary TitleMax offered Texas customers “free” cash as a tactic to get around city ordinances.
Based in Georgia, TMX operates in 18 states with more than 1,470 stores, with plans to grow by more than 20 percent each year until 2017, according to a rating agency presentation obtained by ProPublica.
In a standard 30-day title loan, TMX customers give the title to their cars for loans ranging between $100 and several thousand dollars. When the due date arrives, borrowers can pay only the interest and renew the loan for the principle amount.
TMX’s TitleMax stores in Georgia frequently charge annual interest of around 150 percent. If the borrower defaults on the loan, the lender then can sell the car at auction.
Most of the TMX profits are from customers who are not able to pay off their loans, repeatedly renewing . A company executive testified in a 2009 court case that typical TMX loans renew an average of eight times.
Florida law prohibits loans with annual interest rates of more than 30 percent. Auto title lenders advanced a less restrictive bill in the Legislature three years ago, but it dies in committee.
In Florida, TMX altered the format of loans, which charges the maximum interest rate, with fees for two types of insurance, both of which are in the company’s interest, not the borrower.
The most expensive policies reimburse InstaLoan if the car damaged. Borrowers renewing the loan must pay fees for a new insurance each month, if they want to keep their cars.
ProPublica reviewed 28 Florida loan contracts over two years, where insurance costs effectively made the loans as costly as the Georgia TitleMax loans.
Florida loans—with an annual percentage rate of 30 percent— in effect have an actual annual rate of 144 percent.
Complaints about TMX and InstaLoan stores by consumers to state regulators show customers who often teeter on the edge. One woman renewed her loan 17 times in eighteen months. Another borrowed $3,100, making $2,600 in payments, but after renewing seven times she still owed InstaLoan $3,900. She eventually surrendered her car to InstaLoan instead of paying the loan back.
With only $886 in monthly income, a third purchaser renewed her $3,000 loan that would require her to pay more than a third of her income. She also surrendered her car.
“TMX Finance appears to be violating the law and taking advantage of families struggling to survive in these hard times,” said Florida Legal Services attorney Dorene Barker. The group led a coalition of consumer groups to push the 2000 law.
TMX repeatedly denies any wrongdoing, claiming to follow Florida law. Regulators seem not to have initiated any action in response to complaints.
In states allowing high-interest loans are allowed, TMX subsidiaries do not require insurance purchases.
InstaLoan labels the insurance fees as “voluntary,” but they do require the protection, through either InstaLoan or the borrower’s own insurance. In complaints reviewed by ProPublica, five borrowers sought to avoid the costly policies through InstaLoan, without success.
Lyndon Southern Insurance Co., a subsidiary of publically traded Fortegra Financial Corp., provides InstaLoan insurance policies. In mainstream insurance, the majority of premiums go to claims. In Florida, Lyndon Southern’s auto insurance sends more than half of premiums— by way of commissions and other fees — back to lenders like InstaLoan, according to a 2013 review by the National Association of Insurance Commissioners.
State regulators have done little to stop TMX’s growth in Florida.
To set up shop in Florida, TMX must seek approval from the Office of Financial Regulation. Regulators did inspect a TMX store at the company’s request, only finding minor violations, which resulted in a $4,000 fine and orders to fix the problems.
However, the most significant change was that TMX could not advertise as a “title loan lender,” even though they issue short-term loans against car titles because they are not registered as title lenders. In its place, TMX registered under the Florida statute intended for consumer finance companies offering longer-term installment loans. Title lender laws ban including insurance with loans, but the consumer finance law does not.
Regulators seem to grasp InstaLoan’s business model. After a consumer had filed a complaint last year, one analyst noted in an internal record obtained by ProPublica that “It appears that this loan is essentially a title loan.”