PHOENIX - A Valley woman's financial crisis is a warning to be extra careful when taking out a title loan in Arizona.
Jessica Gibbons of Mesa is like a lot of young people in the Valley. She's in her 20s and just starting out. She also got behind in her bills.
“I needed to pay my rent, and I didn’t want to ask my family for help anymore,” said Gibbons. “I was trying to solve my own problems this time.”
So, Gibbons decided to take out a loan. But, not just any loan. It was a title loan for $2,500. She used her car, a 2010 Chevrolet Aveo, as collateral.
“I've known growing up 'don't do it' but I was desperate and I needed the money,” Gibbons said.
It's quick and easy. In most cases, the lender verifies employment, has you sign over your car and sign the contract. It usually takes about 15 minutes.
After about four months, Gibbons starting falling behind on the payments. She wasn't paying them in full.
The company that gave her the loan took her car. She immediately called her grandmother.
“She called me on the phone in tears because her car was being towed away,” said Marilyn Pollard, Gibbons' grandmother. “I believe her words were, 'you are going to kill me grandma'.”
That title loan Gibbons received had an interest rate of not 8 or 12 percent, not even 20 percent. The interest rate was 156 percent. And it is totally legal in Arizona.
So, that $2,500 loan ended up costing Gibbons more than $5,000.
It could have cost Gibbons a lot more if she didn't own her car outright. Only 20 states even offer title loans and Arizona is the only state that allows consumers to get a title loan even if they don't own their car.
So, if you fall behind and your car gets repossessed, the Arizona Consumers Council says you still have to pay your monthly car payment and the title loan payment, too.
“That's outrageous. That is a great example of predatory lending,” said Arizona Consumers Council executive director Tonya Norwood.
The number of title loan businesses increased last year after the state decided to stop payday lenders from doing business in Arizona. More than 250 of those payday lenders became title loan companies.
“They were looking for alternative ways to still bring in the income and still maintain their client base,” Norwood said.
While payday loan rates were called outrageous by consumer advocates, with rates as high as 400 percent, title lenders can still charge up to 204 percent.
“The lender puts the consumer in a position where they are not able to ever pay that loan off,” said Norwood.
Some places advertise as offering fast loans, instant IRS refunds or secured debit cards. But read the fine print. They are title loan companies.
“It's the predatory lending practices that I don't agree with. It is the deception that I don't care for,” said Norwood. “A consumer can dig themselves into a hole they cannot get out of.”
TARGETING LOW-INCOME NEIGHBORHOODS
Today, there are more than 1,000 licensed operations in Arizona. The ABC15 Investigators took each location of a licensed title loan business and plotted them on a map. (See link to map at the bottom of this story.)
We found high concentrations in areas with high poverty rates according to the most recent census data. There is a cluster of nearly 20 locations along a one mile stretch of east Van Buren Street between Interstate 10 and 7th Street.
“I think their very existence is preying on anybody who finds themselves in difficult financial circumstances who doesn't have any place else to go,” Pollard said.
Title loans are regulated differently in each state. But beginning today, the new Federal Consumer Financial Protection Bureau officially opens.
And those in charge have said policing non-bank loans, like title loans, will be a "crucial piece of the bureaus business."
Our interactive map can show you all the locations currently licensed in the state. You can zoom in for greater detail.
Copyright 2011 Scripps Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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