Naivi Garcia doesn’t think of herself as a statistic, but she’s one of the many Texans—an average of 93 each day—who have their cars repossessed by auto-title lenders, according to reports from the state Office of Consumer Credit Commissioner. It’s the first time the state has collected consumer data from the payday loan and auto-title lending industries.
During the first half of 2012, auto-title lenders seized vehicles on about one out of 10 of their loans—more than 17,000 vehicles in all. Garcia’s experience is typical, advocates say. After a relationship fell apart, Garcia found herself in a financial hole, unable to pay her bills. A family member suggested that she borrow against her car, a reliable 2003 Chevy Cavalier worth $2,100. After appraising her vehicle, LoanStar Title Loans offered to loan Garcia $1,500. The full loan amount plus interest and fees—almost $1,900—was due in 30 days.
“Being a single mom and working a minimum-wage job, it’s really hard to come up with that kind of money,” Garcia said.
As soon as she took out the loan, Garcia said she realized she had made a mistake. She couldn’t even come close to paying off the loan on the income from her minimum-wage job at Goodwill Industries in Austin.
Garcia said she tried to negotiate a payment plan with LoanStar, but the company sent her straight to collections. One morning, she woke to find that her car had been towed away in the middle of the night.
“Just imagine the conversation I had to have with my kids, explaining to them why mommy can’t get to work,” Garcia said.
LoanStar wasn’t satisfied with just taking her car; the company mailed her a letter demanding that she pay $891 to cover towing costs and rekeying fees, in addition to the unpaid balance of the loan.
Texas is widely considered a wild west of payday and auto-title lending. By exploiting a loophole in Texas’ usury laws, the industry can charge astronomical fees and interest, as high as 1,000 percent APR in some cases.
Despite impassioned pleas from faith leaders, social-service organizations and consumers, the Texas Legislature has failed to close the loophole or cap fees, as many other states have done. However, the Legislature did enact legislation that beefs up reporting requirements. Companies must now submit reports to the Office of Consumer Credit Commissioner. Initial data crunched by the agency shows that Texas has the highest fees for auto-title loans of any state.
Don Baylor, a senior policy analyst with the Austin-based Center for Public Policy Priorities, said the high rate of repossession is another sign that such loans tend to ensnare consumers in a cycle of debt.
What often happens, he said, is that people can’t pay off the loan, so they “roll over” the balance into a new loan, with additional fees. “In many ways, when borrowers fail, lenders actually do better,” he said.
Jerry Mitchell, an Austin retiree and volunteer who has helped several people avoid repossession, said that the lenders “go out of their way not to repossess, because that kills the caged cow that keeps coming in every month.” One woman he helped had rolled her loan over four times before he intervened. In just four months, she’d paid her auto-title lender almost $2,500 interest on a $3,000 loan. “They can’t lose,” Mitchell said. “There’s no risk.”