Usurious title loan lenders reined-in, finally

Good guys don't always finish last. Thanks to the assistance of several consumer-minded advocacy groups such as the U.S. Navy, Florida's Attorney General, Florida Legal Services, AARP, Florida PIRG, Florida Impact, and Florida Credit Union League, I was able to pass legislation earlier this year that lowered allowable interest rates that title lenders can charge from 264% annually to 30% annually. Holding the car titles as collateral, title loan companies grant quick loans to owners at 264% APR. When the car owner fails to repay the loan, with interest, the company takes the car. Florida has become a breeding ground for this form of lending. Consumers are lured into storefronts with flashing neon signs with promises of quick cash and no credit check. Desperation often blinds the borrower from seeing what the real costs are to them. Usually, folks without a "financial cushion" to handle an emergency today, do not have the resources to pay the money back in 30 days. That's how they get caught in the debt trap. Paying the interest monthly and never touching the principal. Hundreds of dollars borrowed quickly become thousands of dollars owed. Before 1995, it was referred to as loan sharking. Loan sharking is against the law in Florida. It has been for a long time. In fact, usury laws have biblical origins. Currently, loaning money at rates in excess of 45% APR is classified as a criminal felony with stiff penalties. Unless, of course, a company lends through a loophole in the law. One such loophole is so big that title loan lenders have been driving their armored Wells Fargo trucks right through to the bank. How did this happen? Like their namesakes, "sharks," title loan lenders managed to survive and proliferate by preying on the weak. During the late 1980's and early 1990's, they operated under the auspices of the Pawnbroker Act. Only they did not require the actual vehicle to be pawned, just the title. Legal Services, working with the Department of Agriculture and Consumer Services went to court and obtained an injunction against the practice because of the devastating impact it was having on low income consumers. All too often, a missed payment means the loss of the family car, the ability to get to work, pay the rent and put food on the table. In 1993, the Florida legislature agreed with the courts and outlawed the practice of title loan lending. In 1994, the industry lobbied and got legislation passed to legalize the industry, but the Governor vetoed it. Then, in 1995, the legislature passed amendments to Fla. Stat. 538.06(5) that would permit a second hand dealer to accept a motor vehicle title in title loan transaction and to charge a maximum fee of 22% a month, a usurious percentage rate that translates into 264% annually. Bills filed in 1996 and 1997 failed to rein-in the industry, but a task force was established to review the industry from a consumer protection perspective. In January 1997, the title loan task force submitted its report to the Legislature. The task force recommended repeal of the 1995 law. I filed bills in 1998 and 1999 to lower the allowable interest rates to 30% APR and place the industry under the regulation of the Department of Banking and Finance with other small loan lenders. Both years, the bills were passed unanimously by the House of Representatives, but the Senate refused to concur. Our only hope was to take the message home. County commissioners immediately appreciated our plight. They observed first hand how predatory lending was hurting their constituents. County by county, including Orange, Osceola, Seminole, Brevard, Volusia, Lake and Polk began to adopt local ordinances to cap usurious interest rates. A recurring and reasonable question was posed by the commissioners before the ordinances were passed:"Where will users of title loans go when they need emergency cash?" Luckily, the Florida Credit Union League provided an answer. FCUL was quick to rally its members. A meeting of all the credit unions across the state was held in Orlando to discuss the problem of predatory lending. Promises were made to step up to the plate and provide relief for cash strapped folks in need of help. Florida Central Credit Union had already identified the problem and developed a remedy. Not only were they willing to provide small loans to folks with poor credit history, but they had a plan to also rehabilitate them financially by helping them rebuild their credit. Working with the Attorney General's Office and Florida Legal Services, FCUL shared their plans with each of the County Commissions. And one by one they passed good ordinances. At the start of the 2000 Legislative Session, over 36 counties had joined my efforts. After 5 years of hard work, five years of intense political opposition, it appeared we were in the best possible position to finally get something passed. As the sponsor of the legislation, I was asked to appear on 60 Minutes, the news show. The segment aired in January 2000. A national spotlight was shown on Florida and its burgeoning predatory lending industry. Soon after, the Senate president and Majority Leader pledged their support. The road to success had been paved. I was especially proud when H.B. 301 was signed by the Governor on May 18, 2000 at the Martin Federal Credit Union in Orlando before a crowd of more than 150 people. It was a fitting demise for predatory lenders in a place that offers more than small loans. Credit unions offer hope for a better future. (Dorrine Barker, Esquire, also contributed to this article)