High interest rates on payday or title loans are sometimes justified by the claim that such loans are made only for short terms. But TitleMax of New Mexico, the complaint alleges, charged plaintiff Jesse Romero high interest rates on a loan that was to amortize over twenty-four monthly payments, so that he would pay $4,056.09 in interest on a loan of only $1,940.44 or be required to pay back $309 for every $100 he borrowed.
The class for this action includes all citizens of New Mexico who have taken out a loan with the defendants in this case since March 11, 2013.
According to the complaint, title loans are generally extended to people with lower incomes, so that from 2004 to 2008 the average gross income of all title borrowers was somewhere between $20,000 and $28,000 a year. Title lenders don’t do much to ascertain whether such borrowers can pay them back, the complaint says, because the loans are secured by the title to the borrower’s vehicle and usually worth substantially less than it is—typically about 40% of the vehicle’s value.
Also, the complaint claims, payments are generally applied first to the interest on the loan, so that borrowers can pay for months and find that they still owe nearly all of what they borrowed. As an example, the complaint says that after making six months of payments, amounting to $1,644.52 on a $2,075 loan, Mr. Romero found that only $72.43 had been applied to the principal of the loan. According to the complaint, TitleMax did allow him to roll over his loan, but he has already paid $2,400 on a $2,075 loan and yet current documents show him as still owing $5,996.53.
If Romero cannot pay this loan off, the company will repossess his vehicle and sell it. The law requires them to sell it in a “commercially reasonable way” and to return any amount in excess of the loan to Romero, but the complaint indicates that this is unlikely to happen, since between 2004 and 2008, the average amount returned to borrowers ranged from a low of roughly $12 in 2008 to a high of roughly $68 in 2004. According to the complaint this, is despite typically lending only 20-55% of the vehicle’s value.
The complaint thus alleges that TitleMax of New Mexico violates the Unfair Practices Act in the New Mexico Statutes Annotated (NMSA), which says that an “unconscionable trade practice” is “an act or practice in connection with … the extension of credit … that to a person’s detriment takes advantage of the lack of knowledge, ability, experience or capacity of a person to a grossly unfair degree.”
The complaint alleges that TitleMax misrepresents to borrowers the ease of paying off loans, the chances of repossession, and the cost of the loan, and that in targeting the poor, TitleMax targets its “business practices to those least able to survive them.”