The title lenders are seizing upon a broad retrenchment among banks, which have become wary of making loans to borrowers on the fringe of the financial system. Regulations passed after the financial crisis have made it much more expensive for banks to make loans to all but the safest borrowers.
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The title lenders are also benefiting as state authorities restrict payday loans, effectively pushing payday lenders out of many states. While title loans share many of the same features — in some cases carrying rates that eclipse those on payday loans — they have so far escaped a similar crackdown.
In 21 states, car title lending is expressly permitted, with title lenders charging interest of up to 300 percent a year. In most other states, lenders can make loans with cars as collateral, but at lower interest rates.
Seeing the regulatory landscape shift, some of the country's largest payday lenders are switching gears. When Arizona effectively outlawed payday loans, ACE Cash Express registered its payday loan storefronts in the state as car title lenders, state records show.
Lenders made similar changes in Virginia, where lawmakers outlawed payday lending in 2010. But title lenders were untouched by that law and have expanded throughout the state, drawing business from Maryland.
The number of stores offering title loans in Virginia increased by 24 percent from 2012 to 2013, according to state records. Last year, the lenders made 177,775 loans, up roughly 612 percent from 2010, when the state banned payday lending.
In Tennessee, the number of title lending stores increased by about 22 percent from 2011 to 2013, reaching 1,017.
That is a small fraction of the industry's overall size, state regulators say, because only a handful of states keep statistics. Legal aid offices in Arizona, California, Georgia, Missouri, Texas and Virginia report that they have experienced an influx of clients who have run into trouble with the loans.
"The demand is there for people who are desperate for money," said Jay Speer, the executive director of the Virginia Poverty Law Center.
Loopholes and Adversity
When Tiffany Capone suggested that her fiancé, Michael, take out a $10,000 TitleMax loan with a 119 percent interest rate, she figured it would be a temporary fix to pay the bills. But this summer, after Michael fell behind on the loan payments, the couple's three-year-old Hyundai was repossessed.
"It had my child's car seat in the back," said Ms. Capone, of Olney, Md.
With their car gone, the couple had to sell most of their furniture and other belongings to a pawnshop so they could afford to pay for taxis to ferry Michael, a diabetic with a heart condition, to his frequent doctors' appointments. The hardships caused by title loans are being cited as one of the big challenges facing poor and minority communities.
"It is a form of indenture," said Robert Swearingen, a lawyer with Legal Services of Eastern Missouri, adding that "because of the threat of repossession, they can string you along for the rest of your life."
Johanna Pimentel said she and both of her brothers had taken out multiple title loans.
"They are everywhere, like liquor stores," she said.
Ms. Pimentel, 32, had moved her family out of Ferguson, Mo., to a higher-priced suburb of St. Louis that promised better schools. But after a divorce, her former husband moved out, and she had trouble paying her rent.
Ms. Pimentel took out a $3,461 title loan using her 2002 Suburban as collateral.
After falling behind, she woke up one morning last March to find that the car had been repossessed. Without it, she could not continue to run her day care business.
Pointing to such experiences, lawmakers in some states — regulating the industry largely falls to states — have called for stricter limits on title loans or outright bans.
In Virginia, lawmakers passed a bill in 2010 that institutes some restrictions on the practice, including preventing lenders from trying to collect money from customers once a car has been repossessed. That same year, Montana voters overwhelmingly backed a ballot initiative that capped rates on title loans at 36 percent.
But for every state where there has been a crackdown, there are more where the industry has mobilized to beat back regulations.
In Wisconsin, it took the title loan industry only one year to reverse a ban on the loans that had been put in place in 2010. In New Hampshire in 2008, state legislators enacted a law that put a 36 percent ceiling on the rates that title lenders could charge. Four years later, though, lobbyists for the industry won a repeal of the law.
"This is nothing but government-authorized loan sharking," said Scott A. Surovell, a Virginia lawmaker who has proposed bills that would further rein in title lenders.
Even when there are restrictions, some lenders find creative ways to continue business as usual. In California, where the interest rates and fees that lenders can charge on loans for $2,500 or less are restricted, some lenders extend loans for just over that amount.
Sometimes the workarounds are more blatant.
The City of Austin allows title lenders to extend loans only for three months. But that did not stop Mr. Chicosky, the veteran who borrowed $4,000 for car repairs, from getting a loan for 24 months.
Last year, after applying for a loan at a Cash America store in Austin, Mr. Chicosky said, a store employee told him that he would have to fill out the paperwork and pick up his check in a nearby town. Mr. Chicosky's lawyer, Amy Clark Kleinpeter, said the location switch appeared to be a way to get around the rules in Austin.
The lender offered a different explanation to Mr. Chicosky. "They told me that they didn't have a printer at the Austin location that was big enough to print my check," he said.