Online lenders have become a quick source of cash, but state regulators are struggling to enforce usury laws.
(Associated Press/File photo)
Jodi Arbak’s daughter needed a plane ticket to college and some extra cash to spend once she got there.
So Arbak searched online for a title loan. She filled out an application and sent photos of her 2012 Kia Soul.
Soon she had $1,500. And Auto Loans LLC had a lien on his $12,000 car.
Little did she know that Oregon regulators never cleared the lender or the triple-digit interest rates it charged. And yet, at least 250 other Oregonians have been caught in the same trap: pay exorbitant payments or risk losing their car. Even though they followed each month, many borrowers were beaten by a final lump sum payment that cost more than the original loan.
Arbak says she has never seen a contract setting out those terms.
Within months, his Kia was gone.
“It was awful,” Bend’s mother said. “These people, they don’t care.”
Now state officials are trying to force Auto Loans and its sister companies out of Oregon. But they face the same question that worries regulators and consumer advocates nationwide: How do you close the door on a lender whose primary address is the World Wide Web?
As they struggle to find the answer, Oregon residents continue to be crippled by the enormous financial strains often associated with online loans. The state has not authorized a single online securities lender, and only seven internet lenders in general. Many have no reason to apply because their annualized interest rates are well above Oregon’s 36% cap.
They’re just shelling out money to Oregonians anyway.
Complaints are pouring in – Oregon’s top banking regulator has filed more than 250 complaints against unlicensed consumer lenders since 2010. Auto Loans and its connections are frequent flyers, named in 16 complaints.
Washington issued a consumer advisory last year about a related company, and Pennsylvania ordered a halt and forbearance.
Oregon took action in August, when the Attorney General sued Auto Loans LLC and three subsidiaries. A Multnomah County judge then ordered the company to temporarily stop making or collecting loans in Oregon. The state argues that the unlicensed operation preyed on vulnerable people who may have never seen the contracts that bound them to onerous terms, including annualized interest rates of up to 334%.
Officials also told borrowers to stop repaying the loans, which they declared void under Oregon law.
What should you do?
Oregon officials say people who have taken out title loans from Auto Loans LLC or its affiliates should stop making payments immediately. For more information and assistance, borrowers can call state financial regulators at 866-814-9710 or email [email protected]
How do I find an approved online or short-term lender?
Oregonians can go to stopunlicensedloans.com to find lenders who follow state laws. Currently, there are seven online businesses on the list.
However, court records show that none of the efforts stopped debt collectors from calling.
Many online lenders cite ties to tribes not bound by state rules; others are based overseas and ignore US regulations.
Oregon financial regulators insist that companies are still required to follow state laws when lending to residents. In June, state lawmakers passed a bill that voids loans of $50,000 or less made by unlicensed businesses.
“Internet lending is a huge problem for us,” said David Tatman, who oversees Oregon’s finance and securities division. The bureau has issued more than 20 enforcement orders against unlicensed consumer lenders since 2010.
Yet, when people need money now, the solution is just minutes online.
“We needed a good amount of money,” Arbak said, “not everything we had in savings.”
Arbak made its first loan repayment of $316 in December. Over the course of a year, those payments would have totaled almost $2,300 more than she borrowed in the first place – an interest rate north of 200%.
But Arbak said the next two payments went unpaid after he lost his job. “Next thing I know they’re taking it back,” Arbak said, recalling the day in February when a man from Eugene showed up for his Kia. She and other borrowers said the company tracks cars through GPS devices and hires local companies to repossess vehicles.
“I offered them money,” Arbak said. “They said, ‘No, no. It’s better if you cooperate. “”
At first, she couldn’t even figure out how. When she finally reached a manager, she said she was told she owed $1,600 at one time to get her car back – more money than she had originally borrowed. Instead of paying, she filed a lawsuit with the state Department of Justice.
“I couldn’t believe I let this happen,” she said. “These people are incredibly good at what they do: trick people and scam people.”
Other Oregonians have recounted similar experiences.
A Portland man told state officials he needed vacation money and landed on Title Loan America, a sister company of Auto Loans LLC. He said he read the original contract for his $1,500 loan, but not a second one he says he was asked to sign, supposedly because of a spelling mistake. He believes the later document included a much higher interest rate than he originally agreed to pay.
“I was desperate and needed the money so badly,” he wrote in his June 2014 complaint.
One of the problems regulators face is navigating the complex web of lender-linked businesses. Most of them operate under frustratingly generic names such as Liquidation LLC, Vehicle Liquidation LLC, and Car Loan LLC. Some are based in a post office box in the Cook Islands, a sparsely populated country south of Tahiti in the Pacific Ocean. A physical operating address is difficult to find.
For two years, the lenders operated under the umbrella of Sovereign Lending Solutions, a company owned by the Lac Vieux Desert Band of Lake Superior Chippewa Indians. But the Michigan tribe severed ties and disbanded Sovereign a year ago.
The operation sparked lawsuits across the country. Robert Salvin, a Pennsylvania consumer law attorney, has sued four times on behalf of borrowers shocked to learn of the sky-high interest rates.
“This particular company, and these individuals who are doing it, are the worst,” Salvin said.
Oregon lawyers not only want Auto Loans and its connections to stop lending to Oregonians, but also to repay some of the million dollars allegedly generated by the loans, which carried a average annualized interest rate of 243%.
Investigators searched Department of Motor Vehicle records and found the lender had registered 251 liens on Oregon vehicles, such as the one on Arbak’s Kia. That number doesn’t take into account the number of cars they’ve been able to repossess, said Dorothy Bean, financial enforcement officer at the office of finance and securities.
Tatman, who heads the division, said the large number of people affected and the severity of interest rates warrant the state’s lawsuit.
Filings show an Oregon borrower, identified only as KC, pledged his 2006 Jeep for a $3,500 loan. The client paid $532.55 a month, but couldn’t cover a “huge lump sum payment” to close the loan. The Jeep was taken over.
At some point, unbeknownst to KC, the lender put the Jeep under its own name in Indiana. State investigators later found he did the same to 61 other Oregon cars.
KC cobbled together $8,500 to get the Jeep back — $5,000 upfront, plus another $3,500 over seven months. But when KC completed those payments, the lender demanded another $5,058.
By then, KC had already paid $15,000 for the $3,500 loan.
Company executives have not responded to the state’s inquiry, nor have their attorneys weighed in on Oregon’s subsequent lawsuit filed Aug. 18.
Messages left by The Oregonian/OregonLive were also not returned.
Arbak, Bend’s client, didn’t stop until she got answers.
She discovered her car was in an auction lot in Portland, which agreed to keep her Kia until her consumer complaint was resolved. The process took months, hundreds of emails and the help of state attorneys. “Watching all these detective shows on TV gave me a bit of investigative strength, I guess, to keep going.”
Eventually it worked. She left with the Soul in June. The title returned to his name a week later.
“There are hundreds of people who have been defrauded by these people,” Arbak said.
His advice: “Keep fighting.