Jamela Lott admits that in hindsight, she made a bad decision in a time of stress.
A 13-year-old car was her one asset — but now it is in jeopardy of being lost.
In August, the single mother of five was struggling to provide for herself and three minor children (two are grown).
When she got behind on rent payments, she walked into a Loan Max office in Akron and took out a $900 loan. She had used cash-advance lenders before, but since she was without a job at the time, the only thing of value that she could offer as collateral was her 2001 Oldsmobile Alero, which she said is worth $3,400. She bought it in 2012 with her income tax refund.
Terms of the loan called for Lott to provide a co-signer. She asked a friend and gave her $150 of the $900 loan. Lott promised to take care of the loan and fees, which totaled another $350.
Lott made her first payment of $328 in September, but was only able to pay $150 in October. She refinanced the loan and in late November she said she paid $460.
She was told at that point she owed $1,400, but when Lott asked for details on how previous payments had been credited, she said she was not given any information.
A call to the Loan Max office where Lott took her loan was not returned. The Beacon Journal also asked for an interview with an official at Loan Max’s corporate headquarters.
A statement was obtained from Pat Crowley, a spokesperson for the Ohio Consumer Lenders Association, which is an industry trade group with payday and auto-title lender members.
“Loan Max reports the customer is currently over 60 days past due,” the statement said. “Despite this, Loan Max has continued to try to work with this customer by extending her time to repay and offering alternative payment options.
“Loan Max always wants to work with customers and will work out a payment plan. Loan Max does not want to repossess vehicles, and the only time that is considered is when a customer shuts down and refuses to communicate or work with the company.”
In November, Lott could no longer afford her apartment and moved in with relatives.
She was unable to make the Loan Max payment and said she was leery about whether payments were being credited to her balance.
In December, she got a job in customer service but still couldn’t pay all her bills.
In January, she went to Family Promise of Summit County, which provides temporary shelter to homeless families and offers assistance.
Erica Ward, Lott’s Family Promise caseworker, called Loan Max to inquire about her loan and see if there was an option for settlement.
Lott had paid $938 on the original $900 loan.
Ward was told recently that Lott owed $1,613.60 and there was no option besides repayment or repossession.
Ward said Lott’s debt will make it nearly impossible for her to “graduate” from the program within 30 days into her own home.
Lott took out what is called an auto-title loan. Some consumer advocates say this type is worse than cash-advance and payday loans.
Payday lenders generally loan money for two-week periods against a person’s future employment paycheck and the loans carry high interest rates.
In an auto-title loan, the consumer offers a copy of a car title and set of keys as collateral. These types of loans are considered by consumer advocates to be more dangerous than others because if payments are missed, the car can be repossessed.
“Cars are many low-wealth people’s single asset and they rely on it to get to work,” said Tom Feltner, director of financial services for the Consumer Federation of America, a Washington, D.C.-based nonprofit. “If you don’t have a car and don’t have insurance, it’s very difficult to get the job you are best qualified to get.”
Feltner was one of the authors of a report by his organization and the Center for Responsible Lending last year called Driven to Disaster: Car-Title Lending and its Impact on Consumers. He is an Akron native who grew up in Highland Square and attended Firestone High School.
Feltner and other consumer advocates say auto-title lending doesn’t assess the borrower’s ability to pay back the loan.
The report found that the average car-title borrower renews a loan eight times, paying $2,142 in interest for $951 in credit. While the loans can range from 30 to 90 days, the annualized percentage rate is 300 percent.
One in six borrowers in the report’s survey faced repossession of the car, with fees averaging half of the borrower’s outstanding loan balance.
Auto-title lending in Ohio has grown in the last two years. Lenders are operating through what consumer advocates believe is a loophole in state law.
Legislation passed in 2008 limited percentage rates and terms that payday lenders could offer. But auto-title lenders say they are not payday lenders and operate under two other state laws — the Small Loan Act and Mortgage Loan Act.
Feltner and two other consumer advocates say they believe lax enforcement of the laws by the Ohio Department of Commerce and the Ohio Attorney General’s office are to blame.
The others supporting Feltner are Kalitha Williams, policy liaison for Policy Matters, an Ohio policy and research think tank, and Linda Cook, senior staff attorney for the Ohio Poverty Law Center.
“We think the legislature should come out and ban auto-title loans,” Williams said.
Policy Matters studied the issue in a report in December 2012.
“The loss of a car to a low-income family is hugely detrimental,” she said.
Spokespersons for both the Ohio Department of Commerce and Attorney General’s office said they enforce laws as written.
On its website, the Ohio Consumer Lenders Association has an extensive “facts v. myths” section with information about its industry.
The group disputes consumer advocate assertions, including that the loans are expensive and have exorbitant interest rates and that the loan cycle traps customers into never-ending debt.
“While critics of the industry assign labels to payday advance customers in an attempt to further their political agenda, the fact is that OCLA members provide services to a broad cross-section of Americans because of widespread demand for the product,” the site said.
“Anti-payday lending activists do not represent the views of millions of people who use payday advances responsibly and are glad to have somewhere to turn when they need quick access to credit and find alternatives more expensive,” the site said.
Cook’s Ohio Poverty Law Center works with Legal Aid offices and other organizations throughout the state. She said both sides are watching a case before the Ohio Supreme Court, which stems from a payday lending customer who went into default and a lender who took legal action to collect.
A judge said the interest rates being charged were not allowed and the eventual ruling could lead to legislative action to close the loophole, Cook and other advocates said.
New in Ohio
The auto-title lending business came to Ohio about two years ago. Cook said customers are calling Legal Aid offices about problems after finding themselves unable to pay back the loans after multiple rollovers. When customers do not complete paperwork in their cases, thinking they will quickly pay back a debt, that makes them ineligible for arbitration in case of a dispute. That causes more problems, said Cook.
Cook said she knows of one case in Ohio where a Legal Aid attorney was able to get a settlement for a client facing the threat of losing a car.
Auto-title loan companies can also be “credit service organizations,” which do not supply the actual loan, but broker the loan for a third party.
In Cuyahoga Falls, there is an ordinance limiting the number of payday lenders. Loan Max appealed a zoning decision that denied it access to a location on State Road, saying it was not zoned properly.
Loan Max told city officials it was not a payday lender, but eventually withdrew its application for that location, said Planning Director Fred Guerra.
Policy Matters and other consumer advocate groups wrote responses backing the Falls’ officials decisions.
Lott’s fear now is that she will lose her car.
She drives to drop two younger sons off at daycare before going to her job from 10 a.m. to 7 p.m.
On Thursdays, she has been going to school, but doesn’t get out of class until 9:40 p.m. If she were to lose her car, she would need bus transportation late at night to daycare to get the boys and probably wouldn’t get home until midnight, she said.
“What would probably happen is she would stop going to school,” said Ward. “She’s been barely getting by.”
Lott was been accepted as a client of the local Community Legal Aid and is awaiting her first meeting with an attorney.
Consumer advocates urge consumers who have had problems to file complaints with both the Ohio Attorney General (www.ohioattorneygeneral.gov or 800-282-0515) and federal Consumer Financial Protection Bureau (www.consumerfinance.gov or 855-411-2372).
Williams said consumers should also look at traditional banks or credit unions for loans with collateral, such as a car, because loans at more favorable rates and lengths could be available. “People automatically think they won’t give them a loan,” she said.
The advocates also urge consumers to contact state legislators to close the loopholes that allow for the lending.