John Robert Aguirre stood forlornly at RPM Lenders on the edge of South-Central Los Angeles, slapping twenties onto the yellow countertop.
He was a week late with his monthly payment, and the anxiety showed on his face. His loan has an annual interest rate of more than 100%. He'd put up his truck as collateral. A missed payment could result in the loss of his vehicle.
"I'm a self-employed electrician," Aguirre, 41, told me as he finished counting out the bills. "If I don't have my truck, I can't work."
Title loans, or pink-slip loans, are a form of last-resort credit for millions of people who lack the financial standing to get cash from banks or other lenders. Because of the tough economic times, RPM and other California title lenders say, business has doubled in the last year.
The catch is that customers pay sky-high interest rates. RPM charges annual rates of as much as 180%. Other title lenders charge even more.
You can drive your vehicle while paying off the loan. But if you default, your car or truck can be repossessed. Some title lenders, like RPM, might offer an extra week or two to make good. Others unleash the repo men as soon as the due date passes.
Laws for title loans vary from state to state. In California, title lenders operate in a largely unregulated environment that places no cap on interest rates for any loan over $2,500. As a result, few title lenders offer loans for less than that amount.
"They can charge anything the client is willing to pay," acknowledged Mark Leyes, a spokesman for the state Department of Corporations, which licenses title lenders. "We can take complaints from people, but we don't regulate the loans these companies offer, per se."
Aguirre is typical of most title-loan customers. He put up his 2003 Chevy utility truck as collateral in December 2009 because he needed some fast cash to pay bills. The $2,500 loan was exhausted within just a couple of months.
Since then, he's been paying RPM about $200 monthly and has no idea when he'll get the loan paid off. There hasn't been much work lately.
"I expect I'll end up paying $5,000 or $6,000 in interest before I'm finally clear," Aguirre said.
The title loan industry says it provides a valuable service, extending credit to people who have been turned down by banks and other mainstream lenders. Interest rates are high on an annual basis, but people who can cover their loan faster end up paying less.
"Most of our customers are return customers," said Justin Sharaf, co-manager of RPM's office near South-Central. "They come again and again. We try to treat them right."
For example, he said, Aguirre was charged an annual rate of 108% on his latest loan rather than the average 120% for most new customers. This is Aguirre's second title loan with RPM in the last four years.
About three-quarters of the company's title loans get paid off, typically within eight months, Sharaf said. This can still mean paying about 80% in interest.
Sharaf, 23, said he wouldn't mind having his own title-loan company one day. "It's a lucrative business," he said.
The way it usually works is that a potential customer will bring his or her vehicle to a title-loan company for an inspection and test drive. Then the lender determines how much the vehicle might fetch at auction, which can be about half the Kelley Blue Book value.
A car with a $6,000 Blue Book value, therefore, might have an auction value of just $3,000. Sharaf said in such a case, RPM might lend about $2,600. He said interest rates can range from 6.5% to 15% per month, or as much as 180% on an annual basis.
The beauty for customers is that most loans don't even require a credit check. All the customer needs to do is demonstrate sufficient income to make monthly loan payments — and of course be willing to part with his or her vehicle if things go south.
Oscar Rodriguez, chief operating officer of Encino's 1-800LoanMart, one of California's biggest title lenders, said the industry deserves credit for making cash available to people who have nowhere else to turn.
"You may not like the rates we charge, but customers know what they're getting into," he said. "These are people who have been turned down by the bank or the credit union. So they come to us."
Still, the virtually unregulated nature of the business is more than a little worrisome. Gouging people with stratospheric interest rates is unacceptable under any circumstances. Putting such people at risk of losing their vehicle because they have no other recourse only makes things worse.
Leslie Parrish, senior researcher at the Center for Responsible Lending, said at the very least, title loans should have a limit on the amount of interest that can be charged.
"If you're putting someone's most important asset at risk, there should be significant consumer protections in place," she said.
Elizabeth Warren, who is overseeing creation of the federal Consumer Financial Protection Bureau, told me last week that title loans are high on her regulatory agenda.
"The costs and the risks must be made clear up front," she said, "and it must be easy for consumers to compare one loan with another."
That's a good start. Nationwide rate caps seem like an obvious next step.
With annual rates often topping 100%, there doesn't seem to be much difference between what title lenders do for a living and how Tony Soprano operated.
I pointed that out to RPM's Sharaf.
"Well," he said, "we won't break your legs."
That's something, I guess.