Despite a ban on high-interest car title loans, the nation’s largest title lender has opened 26 Instaloan stores in Florida, offering a refashioned version of the loans that effectively charge the same sky-high rates the law was designed to stop
This story was co-published with The Tampa Bay Times.
When Florida lawmakers banned high-interest car title loans in 2000, then-Gov. Jeb Bush proclaimed that the new law would protect Floridians from lenders "who prey on the desperate."
But in the past three years, the largest title lender in the country has swept into the state, offering a new version of the loans that effectively allow it to charge the sort of sky-high rates the law was supposed to stop.
TMX Finance, which has opened 26 InstaLoan stores across Florida, skirts the ban on triple-digit interest rates by offering loans larded with costly and nearly useless insurance products.
TMX is clearly violating "the spirit of the law," said Alice Vickers of the Florida Consumer Action Network, a Tampa-based nonprofit advocacy group. Florida regulators should be cracking down, she said, instead of "giving them a pass."
TMX's refashioned loans are yet another example of how the nation's high-cost lenders have modified their offerings to circumvent city, state and federal laws designed to limit them. After Ohio prohibited excessive interest rates on short-term loans in 2008, payday and auto title lenders used a loophole to offer nearly identical loans under different state laws. In Texas, TMX subsidiary TitleMax has offered customers cash for free as part of a ploy to get around city ordinances.
From its Georgia base, the company now operates more than 1,470 stores in 18 states with plans to grow by more than 20 percent each year through 2017, according to a presentation made to a rating agency last year and obtained by ProPublica.
TMX officials did not respond to multiple requests for comment. Industry representatives often argue that high-cost lenders serve a vital function by providing credit to consumers who would not otherwise be able to obtain it.
In a basic 30-day title loan, consumers hand over the title to their cars for a loan ranging from $100 to several thousand dollars. At the due date, the borrower can pay just the interest and renew the loan for the principal. In Georgia, TMX's TitleMax stores often charge about 150 percent annual interest, according to contracts reviewed by ProPublica. If the borrower defaults on the loan, the lender can auction off the car.
Lenders like TMX derive most of their profit from customers who can't afford to pay off their loans and who renew them again and again. In 2009, a company executive testified in a court case that the company's typical loan is renewed eight times.
Florida's 2000 law prohibits annual interest rates above 30 percent. Three years ago, auto title lenders pushed a less restrictive bill, but a House committee rejected the measure.
So in its Florida stores, TMX changed the format of its loans, charging borrowers the maximum interest rate, and then typically adding fees for two types of insurance. Both policies protect the company, not the borrower. The most costly policy reimburses InstaLoan in case the car is damaged. Borrowers who can't repay their loans must pay fees for a new round of insurance each month to keep their cars.
A ProPublica review of 28 loan contracts made to Floridians in the past two years shows that insurance costs effectively made the loans as expensive as the TitleMax loans in Georgia. A typical Florida contract listing an annual percentage rate of 30 percent actually carried an effective annual rate of 144 percent.
An examination of consumer complaints to state regulators about TMX and its InstaLoan stores shows that the customers are often teetering on the edge. One Floridian appears to have renewed her loan 17 times in 1 1/2 years. Another woman borrowed $3,100 and made $2,600 in payments, but after rolling her loan over seven times she still owed $3,900. Rather than keep paying, she surrendered her car to InstaLoan. A third customer had $886 in monthly income, according to her loan application. Just to renew her $3,000 loan would have required more than a third of her income. Rather than pay it, she, too, surrendered her car.
"I am 59 years old and disabled, and on a fixed income. I am unable to make such payments and they are threatening to repo my vehicle next week," wrote a Pensacola woman.
Another complaint, from a 78-year-old Tallahassee woman, read: "I was pressured to buy insurance I did not need. I did not understand what I signed, evidently."
"TMX Finance appears to be violating the law and taking advantage of families struggling to survive in these hard times," said Dorene Barker, an attorney with Florida Legal Services, which led a coalition of consumer groups that pushed for the 2000 law.
ProPublica obtained the complaints through a public records request with Florida's Office of Financial Regulation. The identity of the complainants was redacted. In each case, TMX denied any wrongdoing and said it was operating within Florida law. Regulators do not appear to have initiated any action as a result of the complaints.
Consumer watchdogs said lenders are using the insurance as an end run around the law. "The sale and financing of the credit insurance as part of these auto title loans is deceptive and abusive," said Birny Birnbaum, the executive director of the nonprofit Center for Economic Justice and a former associate commissioner at the Texas Department of Insurance.
In states where high-interest loans are not banned, TMX's other subsidiaries do not require borrowers to buy insurance.
Though InstaLoan labels the fees as "voluntary," the company requires the protection, either through InstaLoan or the borrower's own insurance plan. In the complaints reviewed by ProPublica, five borrowers said they sought to avoid using the expensive policies offered through InstaLoan, but none was successful.
The insurance sold through InstaLoan is provided by Lyndon Southern Insurance Co., a subsidiary of the publicly traded Fortegra Financial Corp. In mainstream forms of insurance, the bulk of premiums typically go to claims. But that's not how Lyndon Southern's auto insurance works. In Florida, the company sends more than half of borrowers' premiums right back to lenders like InstaLoan in the form of commissions and other fees, according to 2013 data collected by the National Association of Insurance Commissioners.
Fortegra did not respond to questions about its policies.
State regulators, meanwhile, have done little to slow TMX's advance in Florida. To open a store in the state, TMX must seek approval from the Office of Financial Regulation. Early in the company's expansion, regulators inspected a TMX store at the company's invitation, finding a number of minor violations. They levied a $4,000 fine and ordered the company to fix the problems. The most significant change? TMX was forbidden from advertising itself as a "title loan lender," since the company — despite issuing short-term loans against car titles — is not registered under the law governing title lenders.
Instead, TMX is registered under a statute meant for consumer finance companies that offer longer-term installment loans. The title lender law bans the inclusion of insurance with loans. The consumer finance law doesn't.
Regulators appear to understand the nature of InstaLoan's business. When a consumer filed a complaint late last year, one state analyst wrote in an internal log, "It appears that this loan is essentially a title loan," according to the documents obtained by ProPublica.
In response to questions, Office of Financial Regulation spokeswoman Jamie Mongiovi declined to discuss TMX's loans in any detail. "TMX, through its consumer finance license, is authorized to originate consumer finance loans," she wrote in an emailed statement.
For more on how the high-cost lending industry targets lower income consumers, please see our series Debt, Inc., including our previous story on TMX Finance’s in Texas and our story about how payday lenders bounce back when states crack down.
While the indices may rally intermittently, they are headed lower over the next few days
We had mentioned in our Friday closing report that the S&P BSE Sensex and S&P CNX Nifty, both the Indian benchmarks, may give up more gains in the coming sessions. On Monday, both the indices moved in a narrow range for an hour and then suddenly weakened. After hitting the day’s low the indices tried recovering, which however could not happen.
The Sensex opened at 26,173 while Nifty opened at 7,793. After hitting the day’s high almost at the opening levels, the indices moved lower to hit the day’s low at 25,900 and 7,723, respectively. Both the Sensex and the Nifty closed at their five day closing lows (including today). Sensex closed at 25,991 (down 136 points or 0.52%) while Nifty closed at 7,749 (down 42 points or 0.54%). The NSE recorded a low volume of 70.72 crore shares. India VIX rose 0.72% to close at 14.3225.
Among the other indices on the NSE, the only four gainers were IT (0.42%), Pharma (0.39%), MNC (0.36%) and FMCG (0.34%). The top five losers were Realty (2.80%), CPSE (1.96%), Metal (1.36%), PSE (1.32%) and Media (1.30%).
Of the 50 stocks on the Nifty, 16 ended in the green. The top five gainers were Hindustan Unilever (3.35%), HCL Technologies (1.84%), PNB (1.76%), Cairn (1.72%) and Sun Pharma (1.28%). The top five losers were DLF (-5.23%), Coal India (-3.18%), UltraTech Cement (-3.17%), BPCL (-2.63%) and Ambuja Cements (-2.62%).
Of the 1,596 companies on the NSE, 519 companies closed in the green, 1,023 companies closed in the red while 54 companies closed flat.
India's stock markets will remains closed tomorrow, 29 July 2014, for Ramzan Eid.
India's measures to raise the investment limit for foreign institutional investors (FIIs) in government bonds is a positive for the country's credit profile, since it will help stabilise domestic interest and currency rates, Moody's Investors Service said on Monday. The Reserve Bank of India last week increased the limit available for foreign institutional investors by $5 billion to $25 billion but kept the overall limit intact by lowering the limits for long-term foreign investors such as sovereign wealth funds. Moody's rates India with a "Baa3" rating, the lowest investment-grade rating, and a "stable" outlook.
At a meeting of the World Trade Organization in Geneva on Friday, India said it wouldn't support a "trade facilitation" agreement without a parallel agreement allowing developing countries more freedom to subsidize and stockpile food.
Hindustan Unilever (3.69%) was among the top two gainers in the ‘A’ group on the BSE, and was the top gainer in the Sensex 30 pack. The company posted a net profit of Rs1,056.85 crore for the quarter ended June 2014, as compared to Rs1,019.25 crore for the quarter ended June 2013. Its sales increased from Rs6,809.04 crore to Rs7,716.34 crore for the relevant period.
Coal India (-3.12%) was the top loser among the Sensex 30 stocks. The Coal Ministry on Monday pushed the state-controlled company Coal India Ltd (CIL), to cut its e-auction volume to 25 MT in FY15 from 58 MT last year, and instead feed the coal-fired power projects that are reeling under severe fuel scarcity. However, the CIL Board is not in a favour of lowering the e-auction quantity. The Coal India Board will be holding a meeting on August 12 to discuss the possibility of lowering the e-auction quantity.
Central Bank of India (7.24%) was the top gainer in the ‘A’ group on the BSE. The Bank posted a net profit of Rs191.60 crore for the quarter ended June 2014 as compared to Rs21.93 crore for the quarter ended June 2013. Its total income increased from Rs6,443.45 crore to Rs6,927.71 crore for the same period.
Wockhardt (7.80%) was the top loser in the ‘A’ group on the BSE. The company was in the news recently because of rumours of a stake sale, which was later denied by Wockhardt. It was also reported that the company was in the final stages of receiving much-awaited regulatory approvals for its Chikalthana unit in Maharashtra.
US indices closed Friday in the red.
Except for NZSE 50 (0.14%) and Taiwan Weighted (0.20%) all the other Asian indices which were trading today closed in the green. Shanghai Composite (2.41%) was the top gainer.
Chinese industrial-company profits jumped the most last month, since September, yesterday's data showed. Profits at industrial companies in Asia's largest economy increased by 17.9% in June compared to a year earlier after gaining 8.9% in May, data from China's statistics bureau showed. It was the biggest gain since an 18.4% climb in the September of last year and came after a private gauge of Chinese manufacturing advanced to an 18-month high, data last week showed.
European indices were trading flat, as were the US premarket futures.
Minister of state for civil aviation answers MP Rajeev Chandrasekhar but evades the question on fixing of responsibility for the downgrade
The Indian Government is working towards regaining the country's top aviation safety rating from the Federal Aviation Administration (FAA). FAA, the American aviation regulator has cut India's safety rating to Category II from Category I causing embarassment for the country as well as for the Directorate General of Civil Aviation (DGCA). India had enjoyed the Category I rating since 1997 and the downgrade to Category II, the first for the country, places it in same category as Zimbabwe and Indonesia.
Replying to a question asked by independent member of Parliament (MP) Rajeev Chandrasekhar in Rajya Sabha, GM Siddeshwara, minister of state for civil aviation, said, the FAA downgraded India's aviation safety to Category II in January this year and his ministry is working hard to regain the earlier rating.
The FAA conducts audits of safety standards and processes in the aviation sector for different countries that fly airlines into the US. In other words, carriers from countries downgraded to Category II are barred from expanding operations in the US.
“The FAA on 31 January 2014 informed DGCA that India has been assigned Category II from Category I, which India had been holding since 1997. The Category II was assigned primarily due to the finding related to lack of sufficient number of regular Flight Operations Inspectors (FOIs) resulting in DGCA's inability to have effective safety oversight,” the Minister said, pointing to the reason for the downgrade.
The minister, however, evaded the question on fixing of responsibility for the downgrade and did not specify who had been held responsible for the same.
Mr Chandrasekhar had asked the Government to detail the steps it had taken to address this downgrade and mitigate the security risk that this downgrade implies. In response the minister said, “The DGCA has taken immediate steps to address the open findings of Federal Aviation Administration audit and post December 2013 visit of FAA, the DGCA has completed actions on six out of seven open findings. To address the remaining one open finding, 75 posts of Chief Flight Operations Inspector, Dy. Chief Flight Operations Inspector, Senior Flight Operations Inspector and Flight Operations Inspector have been created, against which, 35 FOIs have already been appointed.”
In January, when the downgrade was first announced, Ajit Singh, the then Aviation Minister had also given a similar answer, pointing to 29 out of 31of the FAA's findings having been rectified. The question is, why couldn't the 7th open finding as noted by incumbent minister Siddeshwara, be rectified on an urgent basis too, the MP asked.
Meanwhile, according to media reports, the DGCA has sought a meeting with the FAA next month to appraise the US aviation regulator on steps taken by India and also to seek another audit about the grading.
The Category downgrade could severly affect any expansion plans of Indian airlines into new US routes or even on existing routes. Often, the FAA upgrade or downgrade acts as a cue for other air safety organistions to follow suit, even though this has not happened yet. With all but the issue of Flight Safety Inspectors sorted out, the DGCA is looking to seek a fresh audit from the FAA, to restore its Category I rating as before. This will not be possible before the recruitment of the required safety personnel is completed, and which has been pending since Februray.