ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Wednesday, February 26, 1997 TAG: 9702260065
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
SOURCE: MIKE HUDSON STAFF WRITER
MANY OF THE LOANS at a Roanoke pawn shop owned by two well-known race car drivers carried illegal interest rates, Attorney General Jim Gilmore says.
For the past couple of years, people who needed money badly enough could walk into City Pawn Shop on 81/2 Street in Southeast Roanoke - a business whose owners include the McGuire brothers, two well-known Southwest Virginia race car drivers.
Needy customers could "pawn" their car titles, pocket a loan of $100 or so, and drive away - with the knowledge that City Pawn could come and repossess their cars if they couldn't repay the loan - plus interest.
The Virginia attorney general's office says customers paid a stiff price - interest rates as high as 547 percent. That's more than 30 times the rate the typical credit card borrower pays.
Attorney General Jim Gilmore claims many of City Pawn's loans carried illegal interest rates and violated other state consumer laws.
On Tuesday, Gilmore announced a settlement with the pawnbroker: City Pawn agreed to pay $2,000 to the state and give what could be tens of thousands of dollars in refunds to customers.
Gilmore's office estimated that as many as 1,200 consumers are eligible for refunds or a cancellation of existing debts.
"This scheme took terrible advantage of many consumers already in financial distress," Gilmore said in a news release. "It was wrong and it was against the law."
But the lawyer for the pawnshop's owners says they never meant to do wrong.
Carr Kinder said he has been attorney for several years for Tim and Tony McGuire, late model stock car drivers who race at New River Valley Speedway and other tracks under sponsorship from Roanoke television stations WDBJ and WSLS.
"Tony and Tim are two of the straightest individuals that I've ever worked with," Kinder said. "I've never known any of them to do anything at all wrong."
Gilmore's office maintains - and a Richmond Circuit Court judge has agreed - that it's against the law to loan money by pawning a car title as collateral. Under the judge's ruling, the pawn has to be an item of substance, such as a TV, watch or a car itself.
Kinder said he might have been able to beat that in court, but he told the McGuires and their partner, Rudy Via, it would be cheaper to just settle and move on.
Kinder did, however, concede that City Pawn had been violating state usury limits.
Virginia law says pawnbrokers can charge up to 5 percent a month for loans over $100. But City Pawn had been charging twice that much - 10 percent a month, which works out to an annual rate of 120 percent.
Kinder said City Pawn is not alone, however. Before it opened in October 1994, the owners checked the other pawnshops in the Roanoke Valley and found that's exactly what they were charging.
City Pawn was "doing the same thing that every other pawnshop in the area was doing," Kinder said. "Everybody in the valley's charging 10 - across the board. I've seen the pawn tickets."
A spot phone check by The Roanoke Times on Tuesday evening confirmed that at least four of the valley's pawnshops charge 10 percent a month on loans over $100.
The attorney general's office, however, said City Pawn went beyond even that. By adding an extra $35 set-up fee to the 10 percent a month, it said, City Pawn pushed customers' annual percentage rates well into triple digits.
The interest rates varied depending on the size of the loan. A one-month, $100 loan cost $45 - an annual percentage rate of 547 percent.
By comparison, a typical Visa or Mastercard customer would pay $1.50 to $3.50, without putting up collateral, to borrow the same amount.
Pawnshops typically serve people who need cash quickly, or who can't go elsewhere because they have bad credit records. Pawnbrokers defend their rates by saying they offer a service that people desperately need.
Henry Woodward, who heads the Legal Aid Society of Roanoke Valley, said pawnbrokers do serve a need, but only "in a perverse sense." The high rates and title-pawns "happen to be illegal. For obvious reasons: It's just serious overreaching."
Woodward said three of his clients had problems with City Pawn. In a case two years ago, Woodward said, the pawnbroker threatened to repossess his client's car, but backed off after Legal Aid became involved.
The attorney general's office did not verify how many people lost their cars after falling behind on their loans. City Pawn told the state it had not done any late-night repossessions, although perhaps 50 of its customers had "voluntarily" turned over their cars.
Kinder said the annual percentage rates on pawn loans seem high only because they are so short-term and for such small amounts. "You're not talking $5,000 loans," he said.
Kinder said that, as soon as City Pawn heard from the attorney general a couple of months ago, it changed its practices. It has reduced its interest rates and stopped doing car-title pawns, he said.
"As long as the law is what it is, they're going to abide by it," Kinder said. "What we're going to do is try to get the local legislators to try to change the law" in the General Assembly.
Woodward, however, said City Pawn officials knew they were breaking the law long before they heard from the attorney general.
During the case two years ago, Woodward said, he warned them that their interest rates and their car-title pawns were illegal. "They didn't take it too seriously," he said.
But, he said, they did ask his client for a favor: "Please don't tell anybody about us turning your car title back to you."
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