BUYER BEWARE: CAR TITLE LOANS AREN'T ALWAYS WHAT THEY SEEM

Interest rates of 300 percent a year are legal on some loans in Missouri.

This really isn't loan sharking, said Steve Gary, counsel for the Missouri Division of Finance.

"We do get some complaints," said Gary, whose office is responsible for monitoring the loan makers. "People tell us That can't be legal,' but it is."

Provisions in Missouri law in 1998 allowed for the creation of car title loan companies. These companies can grant loans of up to $5,000 in exchange for a borrower's car title, held as collateral.

However, most loans average between $300 and $500, Gary said.

The law also gives lenders the latitude to charge any interest rate that a borrower will accept.

In its modified form, the state statute allows car title lenders to charge up to 1.5 percent interest a month on a loan. However, lenders can charge fees for all services they provide, and this is how the interest rates grow, Gary said.

The 1998 change in the law, proposed by state Rep. Brian May of St. Louis, could use another change, Cape Girardeau County Prosecutor Morley Swingle said.

"It appears the way the statute is written it gives them a lawful way to get around the 1.5 percent interest rate," Swingle said. "It might have been better to put a limit on the fee."

But in 1998, legislators were thinking about something else, Gary said.

"The legislature decided then that deregulation was the way to go," he said.

Title loan companies act like pawnshops in certain ways. A notice is not required in order to repossess a car that is in default, Gary said, and it is not a transaction subject to the uniform commercial code.

A consistent problem is repossession of cars before their time, Gary said.

A Perryville, Mo., woman had her car taken away by a Cape Girardeau title company last year, even though she had made all her payments without default.

The woman, who asked to remain anonymous, had taken out a $800 loan in exchange for the title to her 1989 Lincoln Town Car. With a finance charge of $300, she had to pay back $1,100. After three months of $300 payments, she couldn't understand why her balance had not changed.

The man who made the title loan said that it was a 30-day loan, financed at $300 a month. She was only paying the interest.

The woman had not realized that an annual percentage rate had not been written into her contract. When the woman's husband got involved, the lender became angry and repossessed her car minutes after an argument over the phone with the woman's husband.

With assistance from the Division of Finance, the woman got her car back, and her loan terminated, within three days.

Another problem involving a local title loan company involved AAA Check Advance Inc. at 1301 N. Kingshighway. Its manager, Troy D. Hamilton, was arrested and charged with impersonating a Missouri Highway Patrol trooper in order to collect money from borrowers.

The trooper who Hamilton impersonated, Blaine Adams, said an investigation showed Hamilton had used this tactic on several occasions.

Such instances are very rare, Gary said.

The only problem with giving small loans in exchange for car titles has been that people neglect to read the fine print.

"People should understand when they get involved in this that the interest rate is very high," Gary said.

His eight investigators who monitor title loan companies say almost no variance exists in interest rates.

"We're not seeing a spread," Gary said. "It's 25 percent a month."

Unlike traditional loan companies, title lenders are not required to post their interest rates in a conspicuous place in their offices.

What title loan companies are required to show is a "fed box," or uniform disclosures, Gary said. These are the annual percentage rate, amount of money financed, amount of money advanced and the total number of payments.

The loans are designed to be short-term. Nearly every lender places a maturity date at 30 days, Gary said.

A woman who manages a Cape Girardeau title loan company said her loans average between $150 and $500. She asked to remain anonymous.

She said she won't take a car title from just anyone. Too many loan seekers are so desperate, they only want to sign a contract they don't have time to read and get cash.

People with car titles and financial needs just need to slow down before they cash in their titles, Gary said.

"The question people need to be asking themselves is Do I really need the money that badly?'" he said.