Jim Kenyon: Taking an Interest in High-Interest Loans

Justin Martinez was driving along Main Street in West Lebanon when he spotted a sign outside a business that had recently opened in the former post office building. “No Credit Checks Needed,” the sign advertised. “Title Loans for $100 to $10,000.”

Martinez has hit a rough patch financially. The 27-year-old, who works as a waiter in Lebanon, is having trouble keeping up with household bills and supporting his young daughter at the same time. That was even before he overdrew his checking account, which led to bank fees that have only compounded his woes.

Last Wednesday, Martinez decided to check out Title Cash, the Huntsville, Ala.-based car-title lending company that opened an office in West Lebanon in September. Since Martinez owns his car, a 2006 Scion with 102,000 miles, he was eligible for a same-day, few-questions-asked loan. To walk out the door with a check, he’d just have to hand over the title to his car, which he’d get back when the loan was repaid.

Title Cash’s slogan is “Real Money, Real Easy, Real Fast.” Not to mention real expensive.

Car-title lenders typically charge annualized percentage rates of around 300 percent, which works out to 25 percent a month. That means a borrower who takes out a $1,000 loan would have to repay $1,250 when the loan becomes due in 30 days.

And that’s a best case scenario.

Title Cash will extend loans for up to 10 months. By then, the borrower will have paid $1,300 in interest on a $1,000 loan.

What happens if the loan’s principal hasn’t been repaid at the end of 10 months?

The car-title lender can repossess the vehicle. While he mulled over the pros and cons of taking out a loan, this threat wasn’t lost on Martinez. As he told me, “You lose your car, you’re really screwed.”

Car-title lending is big business.

A report released in February by the Center for Responsible Lending, a nonprofit research and policy organization in Washington, D.C., found 7,730 car-title lenders operating in at least 21 states, including New Hampshire.

The typical borrower takes out a 30-day loan for $951, but ends up renewing it eight times, costing them $2,142 in interest, the report showed. One in six borrowers who were part of the Center for Responsible Lending’s report also faced repossession. “For many households, a car is not just a financial asset; it is necessary to get to work, school or child care,” stated the report. “There is little direct evidence that access to high-cost, long-term debt is beneficial to the borrower.”

Roy Hutcheson is accustomed to the criticism. Hutcheson, a former senior vice president with Barclays Bank, started his auto-title loan company in 1994. He now operates 367 stores in 11 states.

I talked with him by phone from his company’s headquarters. “Most of the people who criticize our business made all their money in the mortgage business,” he said, referring to the dealings that led to the 2008 banking crisis. “We don’t have a bad reputation among the people who use our services.”

Hutcheson, 64, isn’t doing anything that state lawmakers across the country haven’t approved. In 2009, New Hampshire outlawed the type of high-interest loans that Hutcheson specializes in. But early last year, the then-Republican led Legislature removed the annual interest rate cap of 36 percent on car title loans. The current cap is set at 25 percent a month, or 300 percent a year. In Vermont, there are no known auto-title lenders; regulations that govern the amount of interest that can be charged on a loan have discouraged companies from moving in, a spokeswoman for the state’s Department of Financial Regulation told me.

This year, Hutcheson opened offices in West Lebanon and Claremont, giving him more than a dozen statewide. He seemed like an affable enough guy, but I still needed to ask: Why does he charge such high interest rates, particularly, to people who can least afford it?

His customers tend to fall into the high-risk category, he said. “Our losses are significant,” he told me.

When I stopped by the Claremont office on Washington Street last week, three cars that had been repossessed sat in the parking lot, waiting to be sold to a dealer, at auction or for scrap.

People seek his company’s services when “no other people will help them,” said Hutcheson. Often their credit cards are already maxed out or they can’t pass the credit check. (Good luck trying to find a bank that even makes small loans, particularly to people whose only collateral is their car.)

So where do working people go when their car needs a new exhaust system to pass state inspection? Their electricity is about to be shut off? The heating fuel company won’t deliver without being paid up front?

“There is no other alternative for them,” said Hutcheson.

Some government agencies and nonprofit organizations with a social service mission try to help people struggling to pay their utility or heating bills. But some people are reluctant to accept what they perceive as a handout. They want to make it on their own.

Justin Martinez comes across that way. After he walked out of Title Cash without taking a loan, we talked in the parking lot. “I hate bugging my family for help,” he said.

Instead he planned to start looking for a second job. He asked me if I knew any companies that were hiring.

I didn’t. But I did know that he probably wouldn’t regret leaving that parking lot without a check.

Jim Kenyon can be reached at Jim.Kenyon@Valley.net.