State sues to block illegal auto title lender

Brian J. O'Connor
Detroit News Finance Editor

An Ingham County Circuit Court judge temporarily barred on Thursday a company based on a remote Pacific island from collecting on illegal title loans that charge triple-digit interest rates, while the Michigan attorney general has warned more than 1,000 Michigan businesses against aiding the unlicensed lender.

Judge William Collette granted a request from the attorney general’s office for a temporary restraining order and set a hearing date of Jan. 27 for a preliminary injunction against Liquidation LLC and eight related companies. Liquidation and its affiliates are accused of bilking 440 Michigan consumers by charging illegal interest rates of as much as 251 percent and frequently seizes borrower’s cars when they can’t pay.

Liquidation isn’t licensed to lend or do business in Michigan, where title loans and loans charging more than 25 percent annual interest are illegal.

The filings said the cars of more than 60 Michigan borrowers were repossessed and retitled in Indiana by Liquidation and its spinoffs, and investigators discovered 13 repossessed vehicles set to be resold at Michigan auctions. Investigators estimated that a total of 334 Michigan consumers are making payments on title loans to these companies.

The motion was filed in Ingham County Circuit Court, and comes two years after Michigan consumers started filing complaints.

“This company’s business model appears designed to take advantage of financially vulnerable consumers with damaged credit histories,” Attorney General Bill Schuette said in a statement. “For many of these consumers, their vehicle is likely their largest asset and only means of transportation, making these illegal loans devastating to their pocket books and even to their ability to go to work.”

The attorney general’s office also announced that it has issued more than 1,000 cease-and-desist orders to Michigan businesses warning them against cooperating with Liquidation LLC or its affiliates. The companies employ a network of websites, mail drops, payday lenders, banks, call centers and repo companies throughout the country to sign up borrowers, distribute checks, collect payments and seize the cars of borrowers who default on the abusive loans.

“Anyone who could be unwittingly working for them, like a towing company, has received a cease-and-desist order,” said Andrea Bitely, spokeswoman for Schuette.

In addition to working as Liquidation LLC, the attorney general moved against these affiliates:

■Autoloans LLC

■Auto Loans LLC

■Car Loan LLC

■Sovereign Lending Solutions LLC

■Sovereign Lending LLC

■Management Solutions LLC

■Loan Servicing Solutions LLC

Title loans involve consumers borrowing against the value of their paid-off cars, often for less than half of the value. Consumer advocates despise the loans because, even in the 16 states where they’re legal, they’re made based on the value of the car but without considering the borrower’s ability to repay. Borrowers roll old loans into new ones an average of eight times, and 1 in 6 borrowers loses the vehicle to repossession, according to the Center for Responsible Lending, based in Durham, North Carolina.

A September story in The Detroit News detailed the alleged unlicensed and illegal lending going on in the state, noting that consumers had been filing complaints with the attorney general’s office since early 2014. In a December follow-up, The News also described how state attorneys general in New York, Pennsylvania and Oregon already had moved against Liquidation LLC and its affiliates as early as April 2014, issuing consumer warnings, hundreds of thousands of dollars in fines, filing cease-and-desist orders and freezing the company’s bank accounts.

In Oregon, Attorney General Ellen Blum’s office has said that consumers in that state were paying $1 million a year, at minimum, on illegal title loans. Investigators searched the state’s database of auto registrations and found more than 250 consumers with Car Loans or one of its variations listed as a lien holder on the title.

In December, Schuette’s office issued a cease-and-desist order to Liquidation and its affiliates, threatening a fine of $500 for each violation of the state’s Regulation of Collection Practices Act, a fine of $5,000 for a first instance of recurring and willful violations, and a $10,000 fine, one year in prison, or both, for a second violation. The office also issued a consumer warning on Dec. 17. Neither the warning or cease-and-desist order was publicized.

Liquidation LLC and its affiliates have been sued by several states and private attorneys but never have responded to any court orders or suits. The companies didn’t respond to a Dec. 7 cease-and-desist order issued by the attorney general.

Michigan’s investigation into Liquidation, the decision on what actions to take, took many months because of the complexity of the scam and its many evasions of laws enforced by both the attorney general’s office and the state Department of Insurance and Financial Services.

“We were working across multiple divisions of our department to get them pinned down,” said Bitely, the attorney general’s spokeswoman. “These are all done through an online application process and it’s taken us a little bit of time and process to get them into a spot where we can actually sue them.”

Bitely added: “They weren’t licensed in any way that we would normally pin somebody down. This is a different issue than we’ve had before.”

Given how extensive Liquidation’s illegal lending has been in other states, there may be many more victims than the handful who’ve filed formal complaints and others identified by the attorney general’s investigation. Bitely encouraged them to contact the attorney general’s investigators. Consumers can reach the Consumer Protection Division at (877) 765-8388, at or by writing to Consumer Protection Division, P.O. Box 30213, Lansing, MI 48909.

“We are realizing that some consumers are pretty embarrassed that they’ve been caught up in this scheme, and we want to be sure that if they’ve been a victim of this company that they tell us,” she said.

The Department of Financial Services is continuing to investigate a second lender making unlicensed title loans, Title Loans of Michigan, she said. That company is run by Philip Andrew Locke, incorporated as PALS Financial Group LLC in Oakland County. One victim, Susan Collins, sued Title Loans in Oakland Circuit Court in July, forcing the company to return Collins’ car and pay attorney’s fees. Collins got her car back at the end of August.

Liquidation LLC once operated out of Michigan under the name Sovereign Lending, incorporating in 2011 under Michigan’s Lac Vieu Desert Band of Lake Superior Chippewa Indians in the Upper Peninsula, hiding behind tribal immunity to charge annual interest rates of up to 390 percent. The tribe dissolved the company in 2014, when it transferred its assets to Car Loans LLC, headquartered in Rarotonga, a volcanic island that is part of the Cook Islands in the South Pacific where the principals behind a business can remain anonymous.

In December 2104, some legal out-of-state auto title lenders attempted to insert a provision into the state pawnshop law to allow title loans in Michigan, but the measure died in the Legislature.