Scrutiny of unlicensed lenders lags in Michigan
When a shadowy offshore loan-sharking operation surfaced in New York, Pennsylvania and Oregon, officials there took action, issuing hundreds of thousands of dollars in fines, filing cease-and-desist orders and moving to freeze the company’s bank accounts.
After nine complaints about that same unlicensed company were lodged with Michigan Attorney General Bill Schuette, investigators closed six cases by sending a letter to the lender and marked the files “cannot assist.” They told another victim they couldn’t help and left two June complaints open, according to documents obtained by The Detroit News through the Freedom of Information Act.
Even though Schuette’s office had a copy of a wide-ranging restraining order filed against the company by the Oregon attorney general, Schuette’s didn’t even issue a consumer alert.
“There are some steps that other states have taken to dissuade these illegal lenders,” said Jessica AcMoody, senior policy specialist with the Community Economic Development Association of Michigan. “In other states, the attorneys general have said that if you lend illegally to anyone in the state, they won’t enforce collection, and that has shut down a lot of illegal lending.”
Instead, consumers such as Susan Collins, of Ecorse, are on their own.
Collins didn’t know title loans — whereby a borrower puts up a vehicle title as collateral — are illegal in Michigan when she borrowed from a small-time unlicensed lender operating out of Oakland County. She did know it was a lousy deal when she took out the loan. But she needed cash immediately.
“I had utilities about to be shut off, and I had to get it paid up, real quickly,” Collins said.
She’d found Title Loans of Michigan on the Web. The company would lend her $800 against her paid-off 2008 Ford Fusion, the man on the phone said. She’d pay $252 a month for six months, a total of $1,512. In return, the lender would take the title to the car and, if she missed a payment, he’d take the vehicle and sell it. She arranged to meet the man at her brother’s house.
“They met me in Melvindale, took pictures of the car and gave me a check,” Collins says. “ I never received any contract. You never go to an office; they always meet you and they always use out-of-state checks.”
Collins made monthly payments on the loan, meeting Title Loans owner Philip Andrew Locke at a White Castle restaurant on Telegraph Road in Redford. In June, Locke claimed Collins was behind on the loan, even though she and her lawyer say she had paid on time, and told Collins she would owe another $1,052 at the end of the loan, pushing the effective annual rate past 581 percent. Later that month, her car was towed.
“They took my car and I didn’t owe them anything,” Collins says.
Title Loans of Michigan issues loans that involve consumers borrowing against their paid-off cars and temporarily signing over the vehicle’s title to the lender. Like the loan practice itself, the interest rate, which can go higher than 250 percent on an annual basis, is illegal in Michigan. Title loans are made without considering the borrower’s ability to repay the loan, and authorities consider them predatory and abusive.
The lenders fail to disclose all the terms, and frequently hit borrowers with unexpected balloon payments, even after the victims already have paid thousands of dollars more than they borrowed. 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, N.C.
In addition to Title Loans, another unlicensed lender also operates in Michigan, working under the names Sovereign Lending Solutions, Title Loan America, Autoloans LLC and Car Loan LLC.
‘Open investigation files’
The Attorney General’s Office is Michigan’s primary consumer protection agency, but when it comes to companies offering financial services, there’s also the Department of Insurance and Financial Services, which operates under Director Patrick McPharlin.
The office refused to release complaints despite a Freedom of Information Act request from The Detroit News, saying that the records either didn’t exist or that the records “are considered investigatory materials and exempt” under the disclosure law.
The financial services agency did release a summary indicating a consumer complaint has been filed against Sovereign Lending Solutions, another against Sovereign Lending and Car Loans LLC, one against AutoLoans LLC and one against Title Loans of Michigan since March 2014. An official added via email only that there were “open investigation files.”
Since 2014, Collins and four other borrowers who filed complaints with the Attorney General’s Office said the lenders were trying to repossess their cars or already had seized them.
The Secretary of State declined a request from The News to review Michigan auto titles to see how many vehicle owners might be stuck with illegally issued liens from fraudulent title lenders. Representatives said they were technically unable to conduct such a search.
Spokesmen for Schuette and McPharlin wouldn’t say what actions had been taken against the illegal lenders. Nor would they make staff attorneys available for interviews.
The Attorney General’s Office did release copies of consumer complaints filed there, with most marked, “no jurisdiction.” Andrea Bitely, spokeswoman for Schuette, said: “It doesn’t mean that no one has jurisdiction; it means that another agency has jurisdiction. In this case it would be the Department of Insurance and Financial Services.”
In an email, Bitely added, “In a situation where a consumer believes they have been wronged by a company or other entity, we encourage them to contact our Consumer Protection Division.”
That’s what Collins did, but in the end, her only help came from Adam Taub, a Southfield consumer attorney.
“The problem in Michigan is that people can commit fraud with impunity,” Taub said. “Consumer protection is an issue that the people running our state don’t give a crap about.”
The lender working as Car Loans LLC operates out of Rarotonga, part of the Cook Islands in the South Pacific, where business owners can remain anonymous. Car Loans dodges lawsuits and fines by operating over the Internet and through call centers, setting up and then shutting down websites, and working through mail-forwarding services and virtual offices. When borrowers can’t pay, the lender hires independent repossession services to seize the cars and sell them through wholesale auctions.
Other states step in
But unlike in Michigan, consumer protection officials in several other states have stepped in to try to stop them.
When Car Loans started repossessing cars in New York, that state’s attorney general, Eric Schneiderman, contacted the state’s licensed repossession companies in April 2014 and made them agree to stop accepting work from the company.
After Pennsylvania found more than 150 citizens had been given illegal title loans, the state’s Department of Banking and Securities in June issued a cease-and-desist order against Car Loans and its other entities, as well as William McKibbin III, Kevin Cronin, Mark Edward Wiener and Kelly S. Bonner, the four men thought to be behind the company.
The department ordered Car Loans to issue refunds and fined the company $412,500 — $2,500 for each of 161 victimized Pennsylvania residents.
In Oregon, Attorney General Ellen Blum went even further. Her office estimates that Oregon consumers are 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 response, the Attorney General’s Office filed a restraining order against the company in September, then contacted all the repo services in the state, telling them they weren’t allowed to take cars for the company. The office also tracked some bank accounts to which Oregon borrowers were sending their payments.
“We’ve been able to freeze a few of their accounts in several banks,” said Althea Cullen, an assistant attorney general at the Oregon Department of Justice. “We try to freeze those accounts, but the reality is that they’re very sophisticated and they’ve probably moved all the money.”
To thwart collection attempts, Oregon has sent a letter to every borrower identified through title registrations, instructing them to stop making payments on the loans until a trial has been held, because they are illegal. With Car Loans cut off from hiring licensed repo companies and having its checking accounts monitored, state officials hope to throttle the flow of money and cars out of their state.
Said Cullen: “Once we saw how many Oregonians were affected, and that it was 250, you’ve got to do something about that.”
In Michigan, state officials have not issued an official consumer warning.
“I get a lot of calls on title loans,” Taub said. “A lot of times, the people who are the victims of these loans don’t have time to make an appointment during business to come and see an attorney, because they’re going to lose their job if they take off from work. But if they’re being abused or harassed, they probably should call a lawyer. Every single one of these loans that I’ve seen is a horrific loan.”
Taub sued Title Loans of Michigan 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. An investigator from the financial office called Collins in October. Despite the fact that Collins filed a formal complaint with Schuette’s office, neither she nor her attorney has been contacted by those investigators.