On Victory Drive, Soldiers Defeated by Debt
Published: May 29, 2013
Tyler said he provided his military ID when he got the loan. But even with an annual rate as high as a typical payday loan, the Military Lending Act didn't apply. The law limits the interest rate of title loans 2014 but only those that have a term of six months or less.
In South Carolina, almost no loans fit that definition, said Sue Berkowitz, director of the nonprofit South Carolina Appleseed Legal Justice Center. The reason? Ten years ago, the state legislature passed consumer protections for short-term auto-title loans. In response, lenders simply lengthened the duration of their loans.
Today, plenty of payday and auto-title lenders cluster near Fort Jackson, an army base in Columbia, legally peddling high-cost loans to the more than 36,000 soldiers who receive basic training there each year.
Tyler's loan showcases other examples of lenders' ingenuity. Attached to his contract was an addendum that offered a "Summer Fun Program Payoff." While the loan's official term was 32 months, putting it outside both South Carolina's regulations and the Military Lending Act, the "Summer Fun" option allowed Tyler to pay off the loan in a single month. If he did so, he'd pay an annual rate of 110 percent, the addendum said.
Michael Agostinelli, the chief executive of Smart Choice's parent company, American Life Enterprises, told ProPublica he wants his customers to pay off their loans early. "They're meant to be short-term loans," he said. He also said that customers who pay on time get "a big discount." In Tyler's case, he would have paid an annual rate of 192 percent if he had made all his payments on time.
But Tyler fell behind after only a couple of payments. Less than five months after he took out the loan, a repo company came in the middle of the night to take his car. Three weeks later, it was sold at auction.
"This was something new, and I will never do it again," Tyler said. "I don't care what type of spot I get in."
American Life Enterprises companies operate nine title-lending branches in Nevada and South Carolina. Agostinelli said loans to members of the military are rare for his companies but that service members might go to a title lender for the same reason anybody else does: They need money immediately and discreetly.
Loans similar to the one Tyler took out are broadly and legally available from stores and over the Internet. QC Holdings, Advance America, Cash America and Ace Cash Express 2014 all among the country's largest payday lenders 2014 offer loans that fall outside the definitions of the Military Lending Act, which defined a payday loan as lasting three months or less.
The annual rates can be sky high, such as those offered by Ace Cash Express in Texas, where a five-month loan for $400 comes with an annual rate of 585 percent, according to the company's website.