REPOSSESSIONS, WRITE-OFFS Repossession and write-off practices in 2004, based on responses from 894 title pledge locations in Tennessee: Repossessions Number of locations reporting 539 Number of repossessions 17,313 Avg. cost of repossessions $92.10 Avg. number of days held before sale 43 Avg. cost of storage $72.05 Avg. sale price of sold vehicles $451.46 Average cost of advertisement $4.02 Write-offs* Number of locations reporting 447 Total number reported 20,844 Number due to bankruptcy 1,791 Dollar value $13 million * Uncollectible accounts are accounts that are past due and may be subject to repossession. Companies may decide to write off these accounts. The timing of write-offs is determined by internal company policy. Source: Tennessee Department of Financial Institutions

Total cost for the loan? A $13,000 auto, plus $4,500 in payments.

"I was at home in the shower getting ready to go to work, and I went out to get my truck and it was gone," says Haga, 44, whose loan carried an effective 300% annual interest rate. Adding to his worries, Haga's girlfriend, Brandy Smith, 31, is carrying a similar, $700 loan.

Haga is one of thousands of consumers who have turned to auto title lenders for quick cash and ended up with big problems. Under the loans, sometimes called auto equity lines of credit or auto pawns, individuals offer fully owned cars or trucks as backing for loans of several hundred to several thousand dollars. Lenders take the title to the vehicle and, often, a duplicate set of keys.

Title lending is one of the lesser-known, high-cost loans now proliferating across the country. But consumer advocates call it one of the more dangerous.

If borrowers can't pay back the loans, often due in 30 days, they often roll them over, with multiplying fees. If they still fall behind, their cars can be repossessed. That contributes to a downward spiral, with people unable to get to work, a doctor or drive their kids to school.

There are no comprehensive statistics, but the Tennessee Department of Financial Institutions said more than 17,000 autos were seized by title lenders in that state in 2004. In Oregon and Idaho, government data show hundreds of cars repossessed. Rod Aycox, president of LoanMax auto title and its affiliated companies throughout the country, made about half a million loans this year and repossessed cars in 5% of the cases, or 25,000 autos, according to a statement from his firm. The average age of cars offered as collateral was 10 to 12 years.

Lenders like LoanMax are lobbying state legislatures to ward off what they call overly stringent laws, saying they provide a needed service for people who can't get financing elsewhere and comply with consumer finance laws where they operate. Some hasten to add that many borrowers don't fit the profile of the down-and-out desperate willing to sign anything.

"You'd be very surprised," says Shane Edrington, president of PrePaid Motors, an Internet-only lender in Scottsdale, Ariz. He mentions a recent customer who offered a paid-off $40,000 luxury car as security for a $3,000 loan.

PrePaid Motors charges 10% a month for loans. The firm plans to institute a system early next year in which consumers borrowing larger amounts will have a Global Positioning System and auto-disabling technology installed in their cars to make it easier to recover a vehicle in the case of default.

Coley Ward of Georgia Watch, the state's largest consumer advocacy group, says many of the borrowers he sees fit the profile of the Lummus family.

Alicia and Clinton Lummus of Conyers, Ga., took out a $525 loan in March when injuries forced both to stop working. After paying $132 a month for eight months, Alicia Lummus, 30, told her lender she couldn't keep up and asked for an extension.

The lender repossessed the truck. Not only that, but the person who came for the truck drove it into a ditch and told the Lummuses they'd never get it back unless they helped pull it out, Lummus says. They did but are still trying to recover the $14,000 auto.

"I'd … be scared ever to do it again," says Lummus, who chose her lender because it was close to her home and didn't require a credit check.

If she gets into financial trouble in the future, Lummus, who doesn't have a bank account and cashes her paycheck at a local store, says she'd "go to my mom or dad. I didn't want them to know last time. I wanted to do it myself."

Under Georgia law, title lenders who sell repossessed autos worth more than the outstanding balance of a loan can keep the difference. In Virginia, Haga is working with Legal Aid attorneys to get his truck back. The Virginia Poverty Law Center is actively involved in the issue of auto title lending.

Efforts to regulate

President Bush earlier this year signed a law that will place a 36% annual cap on payday and other high-cost lending to the military. Under payday loans, consumers offer a post-dated check in return for a short-term loan with annual fees of often 300% or more.

Consumer advocates call that a start but say the protections need to be extended to all borrowers.

Small loans are mainly regulated by states and local governments. Auto title lenders operate in about half the states, according to the Consumer Federation of America (CFA).

A few states, including Florida and Kentucky, have clamped down on the practice, according to Jean Ann Fox of the CFA. In such states as Illinois, Utah, Iowa, Kansas and Virginia, lenders are acting with effectively no restraints on rates, she says.

"There's no consumer protection for working-poor people who struggle. … We just simply say, 'Tough, they're dumb,' " says state Sen. Joe Bolkcom, D-Iowa, sponsor of a bill to put a 21% annual interest cap on auto title lending in his state. "There's a huge amount of money that leaves Iowa in the form of these fees."

Iowa House Speaker Christopher Rants, a Republican, has fought Bolkcom's efforts, saying government should not act as Big Brother and take options from people who may have limited access to credit.

"They're not trying to regulate them. They're trying to put them out of business," Rants says. "If you start deciding how much interest somebody is going to charge, where do you stop? I'd like a better rate on my home mortgage."

In Iowa, lenders are offering car title loans with annual rates of more than 300%. Because the loans are set up as open-ended credit, they aren't subject to a limit on interest rates.

The open-ended provisions were originally meant for credit cards, a form of unsecured credit. Though title loans are secured by an auto, title lenders charge rates 29 times that of credit card firms, the Iowa attorney general's office notes.

Car title reform legislation passed the Iowa Senate twice but did not come up in the House amid large campaign contributions on behalf of Aycox's business interests. The November elections gave Democrats control of the Legislature, and Bolkcom and Rants both expect another run at the issue.

Aycox, in a statement through his firm, says artificially capping interest rates at even a higher 36% would "force our company out of the business and thereby eliminate a needed credit option for hundreds of thousands of consumers."

"Unfortunately, special interest groups who oppose the idea of title loans being made available to consumers do not grasp the basic economics of our industry," the Aycox statement said.

Iowa is just one state where Aycox, on behalf of his business and affiliates, has been active. One recent example: The industry pushed for a new law in Idaho, which took effect in summer, spelling out the legal boundaries for title lending. The law requires disclaimers regarding the loans, a 24-hour cooling-off period in which consumers may back out and a provision that consumers have to start making principal-reduction payments on the third loan renewal. But the law sets no cap on interest rates.

State records show 110 title lenders in Idaho. A 2004 report, based on 2003 data, found the average annual interest rate on the loans was 292%. More than 1,400 vehicles were repossessed that year.

"It may surprise some people, but we get very few complaints," says Michael Larsen, consumer finance bureau chief of the Idaho Department of Finance, noting just four in the report. "Folks sit across the table and enter into an agreement. If they've gone in with eyes wide open, at the end of the day they say, 'This is a contract. … I have my end of the contract to uphold.' "

The CFA's Fox says the Idaho law typifies the tactics of title lenders.

"They want legislation enacted that gives them the legal imprimatur of respectability, without restraining their practices in any meaningful way," Fox says.

Greg Gonzales, acting commissioner of the Tennessee Department of Financial Institutions, also says his state gets few complaints. But he notes that, prior to recent state licensing changes, 1 of every 4 title firms was charging higher-than-permitted rates and fees. After Tennessee stepped up inspections, the number of auto title lenders dropped from 931 to about 725.

"Sometimes I wonder whether people feel comfortable coming to the regulator and saying that 'I'm involved in these kinds of transactions,' " Gonzales says. "There certainly appears to be a strong interest in this product."

Consumer groups in Tennessee want tighter laws, noting annual interest and fees can total 264%.

Some consumers feel powerless when finding the loans are legal.

Gwen Irvin, 57, used a Valdosta, Ga., lender for a loan of $1,800 on a fully owned 1995 Cadillac a couple of years ago. She made $6,000 in payments before the loan was retired.

"We had to sell things, that's what we did. The TV, the VCR," Irvin says. "We were stuck in a situation that was really endless, every month scrounging around … so we wouldn't have to walk."

Irwin searched the Internet to find out whether the loans were legitimate. Rather than going to the government, she found Georgia Watch's campaign to rein in the lending.

Alternate credit growing

Auto title lending is part of a huge expansion of the alternative financial system since the 1990s, including payday loans, high-cost mortgage products and check-cashing firms. The industry has boomed by opening outlets in areas not served by banks, promising loans regardless of credit history and providing quick cash, including Internet lending and disbursements via prepaid ATM cards for clients without bank accounts.

Consumer advocates worry that these lenders are stripping assets from lower-income Americans who can least afford it, helping exacerbate an already huge U.S. wealth gap.

The consumer group Center for Responsible Lending estimates 2.2 million families who took out high-cost mortgage loans may end up in foreclosure, a forecast called too pessimistic by the Mortgage Bankers Association.

The auto title industry is not likely to proliferate as much as high-cost mortgage and payday lending for the simple fact that only a set number of people have paid-off cars to offer as collateral.

"People are more familiar with payday loans. This is its little brother," says Helen O'Beirne of the Virginia Partnership to Encourage Responsible Lending, a coalition of consumer, labor and religious groups.

"Car title is actually worse because they are usually larger lines of credit, getting people deeper and deeper into debt," O'Beirne says.

Enlarge By Michael A. Schwarz, USA TODAY Alicia and Clinton Lummus of Conyers, Ga., bought this 1994 Ford Taurus to replace a truck that they used as collateral for a $525 loan. It was repossessed after they repaid more than $1,000 but weren't able to keep up with payments.