Loan against car title

Car-title loan company takes borrowers for a ride, suit says

By TOM KERTSCHER of the Journal Sentinel staff

Sunday, July 14, 2002

You know your lender is serious when it charges 300% annual interest and demands the title to your car for collateral, even when all you need is several hundred dollars for a month or so.

But Wisconsin Auto Title Loans, a thriving concern with 22 offices throughout the state, goes one step further.

Borrowers, besides agreeing to the 300% annual percentage rate and handing over their car title, also must surrender a key to the car -- making clear, if it wasn't already, that if you default on the loan, they'll drive your car away.

For these reasons and more, the Legal Aid Society of Milwaukee last week filed what it hopes will be a class-action lawsuit against Wisconsin Auto Title Loans. Legal Aid calls Wisconsin Auto Title a "predatory lender" that must be stopped.

The firm's loan provisions and collection procedures violate state law, says Legal Aid attorney Hannah Dugan, and its interest rates are "unconscionable."

But the power of those arguments in court remains to be seen. A hearing on the class-action request is set for Tuesday before Milwaukee County Circuit Judge Kitty Brennan. If a class action is approved, thousands of Wisconsin Auto Title borrowers could be added to the case.

But therein lies a key point: If, as Legal Aid alleges, the company has made more than 50,000 loans statewide since incorporating nearly four years ago, isn't that evidence that the company is meeting a need?

"People come to us. We don't go knocking on doors," said Edward Heiser Jr., a Milwaukee attorney who represents the lender. "People want this service."

Many financially strapped borrowers, it would appear, decide that title loans are their best alternative. But at least some of them get ripped off, according to Legal Aid, which wants the judge to order changes in the way the company operates.

Seeking a wider case

Legal Aid, a non-profit agency that often takes on causes for the poor, is trying to create a class-action lawsuit by intervening in a collection action brought against borrower Kenneth M. Jones, a north side Milwaukee resident. Jones, 61, was out of work last December when he visited the company's office at N. 35th St. and W. Capitol Drive.

Wisconsin Auto Title Loans is a subsidiary of Community Loans of America in Atlanta, formerly Title Loans of America, which does car title lending nationally, said Heiser. Wisconsin Auto Title has 22 offices in Wisconsin, including six in Milwaukee County.

According to Legal Aid's court papers, Jones wanted $800 to help make ends meet, but was required to borrow $954: the $800 plus $150 for a year's membership in the Continental Car Club and $4 for a title filing fee. Filing the loan information with the state gave the company the right to go to court and seize Jones' 1992 Infiniti, with 103,000 miles on it, if he defaulted. He also had to turn over his spare car key.

The deal called for Jones to repay $1,197 last January, one month after getting the loan. But by April Jones had defaulted, and the company demanded a total payment of $1,627. When Jones didn't pay, it filed a small claims action seeking a judge's permission to seize his car -- one of more than 2,000 such actions it has filed in Wisconsin, according to Legal Aid's court papers.

Legal Aid alleges that, although the 300% annual percentage rate was stated in Jones' loan papers, the rate actually is higher because of understated finance charges and the auto club fee. Moreover, the suit alleges, the company didn't give Jones proper notice before going to court for repossession and violated other provisions of state consumer law.

'Full compliance'

Heiser said he had only begun reviewing the allegations, but stated that the lender "is confident that its practices and its forms are in full compliance with Wisconsin law."

As for the type of loans offered, Heiser said that although the loans carry a 300% interest rate on an annualized basis, that can be misleading because most of the loans are written for only one month. Thus, the interest rate appears high, but the actual amount paid is not exorbitant, he said.

Requiring the car title and key provides some protection in making the loans, he added, but the company's goal is not to repossess cars, many of which have relatively low value.

And as for Legal Aid, Heiser alleged that it violated court rules by seeking a class-action lawsuit as part of a small claims case. The rules require that notice be given before a class-action request is filed, he said, so that the lender could decide whether to change any of its procedures to avoid litigation.

In any event, until Legal Aid's case goes further, the company will continue making loans the way it has and borrowers will have to fend for themselves. One who tangled with the company and, in his mind, won, is Milwaukee resident Bill Robinson.

Robinson, a 45-year-old electrician for Milwaukee County, also visited the office at 35th and Capitol. While between jobs last November, he borrowed $1,800, but when he fell behind on payments the total due by March was $4,000, he said.

After the lender went to court and won the right to seize Robinson's 1991 Ford Explorer, with 200,000 miles on it, he called Wisconsin Auto Title. He was offered a deal, he said: He could keep his vehicle by paying $2,300 -- the rest of the $4,000 debt would be wiped away.

Robinson said that within half an hour he showed up at the 35th and Capitol office with a cashier's check for $2,300 but was told no partial payments were accepted. That's when he got angry.

The next day, Robinson bought a newer and better Explorer for $2,500 and dropped his old Explorer at the office. But before that, he replaced the newer tires with spares and removed the battery.

"I tried to do the honorable thing" by repaying the loan with the cashier's check, Robinson said. "I felt good the way it ended because I screwed them back."

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