THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, April 19, 1995 TAG: 9504190413
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY LAURA LAFAY, STAFF WRITER
DATELINE: NORFOLK LENGTH: Long : 131 lines
At Car Pawn of Virginia Inc., you can pawn your car and then drive it home. Car Pawn gets the title, you get the cash.
It's a perfect deal, says manager Michael Freeman, for the customer who needs money fast but can't pay it back without a car to get to work.
Attorney General James Gilmore doesn't see it that way. He has gone to court to stop Car Pawn from making loans, prevent it from collecting on the loans it has already made, and impound its property.
``Car Pawn, in essence, made short-term loans at an annualized rate of 296 percent in violation of Virginia laws,'' Gilmore said Monday. ``They are taking outrageous financial advantage of Virginia consumers. As consumer counsel for the citizens of Virginia, I have a duty to protect them from such uses.''
Gilmore's office has filed a lawsuit against the company, alleging that, by allowing customers to keep their cars, it is operating as a consumer finance company rather than a pawnbroker.
As a finance company, the lawsuit maintains, Car Pawn is not permitted to charge more than 12 percent annual interest on its loans. But by imposing a series of different fees on customers, the attorney general charges, Car Pawn is charging interest rates of 296 percent or more.
And then there is the title issue. Virginia's pawnbroker statute defines a pawn as an advance of money ``on the pledge and possession of personal property.'' The title of a car, Gilmore's office maintains, does not qualify as personal property.
Car Pawn says it does.
Walter D. Kelley Jr., an attorney representing the company, has asked for a judicial opinion on the matter. Gilmore's office has filed a motion against the request. A hearing date has not yet been set. But as the lawyers bicker on paper, Car Pawn continues to do a brisk business from its storefront office on West Little Creek Road.
The office - formerly the headquarters of a check-cashing operation called Advance Checking - has a history with the attorney general's office. In 1992, Attorney General Mary Sue Terry filed a lawsuit accusing Advance Checking and other similar outfits of illegally lending money at annual interest rates of 2,000 percent.
The lawsuits ended in 1993 with a permanent injunction and a settlement of $515,433.19 to pay off consumer claims. But a connection remains. One of the defendants in the case was Loren Gill, president and director of Ameracheck Corp., a Tacoma, Wash.-based company that owned Advance Checking. Gill also is listed as the president and director of Car Pawn.
``He owns other types of businesses - rent-to-own businesses and other car pawn businesses as well,'' says Car Pawn manager Freeman.
``I think they're experimenting with different businesses in different states. And each state has different laws. So if it doesn't work in one place, they'll do it in another.''
A 26-year-old former baker, Freeman says he doesn't understand why the state is picking on Car Pawn. Other Hampton Roads cities may have told pawnbrokers it is illegal to let customers keep their cars, and those pawnbrokers may have complained, he says. Or maybe Gilmore's office just has it out for Loren Gill.
``If that's the case, I think that's a little personal,'' he says.
``This isn't a get-rich-quick scheme where I'm trying to make a lot of money and the customers are going to get screwed. I want to build a long-term reputable business. I've tried really hard along the way to make sure every `T' is crossed and every `I' is dotted.
``What I have tried to do is make this as legal and up-front as possible so people know when they walk out of here exactly what they're getting themselves into. . . . Most people who come through here seem to be really happy with the whole idea.''
Freeman loans customers about 20 percent of the Blue Book loan value of their cars. That value is cut in half, however, if the car has more than 100,000 miles on it.
The company offers three options:
If customers are insured, they can add Car Pawn as a lienholder on their automobile insurance policies. They are then charged 5 percent of the loan plus a $2 monthly pawn fee and a one-time $6 fee to the Division of Motor Vehicles for the change to their insurance records. The pawn can be renewed each month.
They can leave their cars with Car Pawn until they pay off the pawn ticket plus the 5 percent fee. The pawn can be renewed each month.
They can keep their cars and pay a monthly ``limited damage waiver fee'' equal to 20 percent of the loan. Gilmore's office claims the fee constitutes interest. Freeman says it's more like insurance.
Although Gilmore alleges that Car Pawn ``has geared its services to military personnel in the Tidewater area,'' Freeman says he gets all kinds of business.
On a recent morning, his customers included a woman making a payment for her boyfriend, Harold, who was out to sea. Another woman - paying off a loan on her Porsche - needed money for her home decorating business, but didn't want her husband to know about it, Freeman explained. ILLUSTRATION: Color photo
MOTOYA NAKAMURA/Staff
Manager Michael Freeman, 26, says he doesn't understand why the
state has targeted Car Pawn.
Graphic
TWO SCENARIOS
Here's how Car Pawn of Virginia would handle a 1987 Nissan Sentra
with 140,000 miles on the odometer. The loan trade-in value of the
car is $1,850. Because the car has more than 100,000 miles, that
value is cut by one-half to $925. Twenty percent of that is $185.
That amount is rounded to the nearest multiple of $100, or $200.
That is the amount of the loan.
1. If you have comprehensive insurance coverage and want to keep
driving the car, this is what happens: You get the $200 loan. Then
you pay a 5 percent monthly (60 percent annual) finance charge, $10
in this case, and a $2 monthly pawn fee, plus a one-time $6 fee to
the Division of Motor Vehicles. Thus 30 days after the transaction,
you owe Car Pawn $218.
2. If you do not have comprehensive insurance coverage but want
to keep driving your car, here's what happens. You sign a 30-day
contract agreeing to pay a damage waiver equal to 20 percent of the
loan - in this case, $40 - plus the 5 percent finance charge and $8
in fees. For your Sentra, if you add the $40 damage waiver to the
loan amount, the fees and finance charges would total $60, payable
30 days after the transaction. This contract expires after 30 days,
but can be renewed under the same terms each month. Thus a customer
could pay $360 in fees and finance charges in six months on a $200
loan.
NOTE: The pawn shop can repossess your car 60 days after the
transaction if you have not paid the charges and fees.
by CNB