Eaten Alive

Rent-to-own stores, pawnshops, payday lenders -- it's hope for sale, with interest

Tinita was dunning people to settle their debts even as she was racking up more of her own. Anticipating that a bank would repossess her Hyundai at any moment for missed payments, she decided to preempt the problem by simply buying another car.

The used-car dealership off I-45 North was a small lot of decomposing jalopies window-plastered with neon deals. Without ever submitting to a credit check, Tinita put $500 down on a gold 1980s ragtop Jeep. Overlooking the Jeep's larger faults, it might have been worth twice that. But Tinita signed a contract obliging her to pay another $150 every two weeks for about a year. She'd been classically suckered by one of the city's many buy-here-pay-here car lots.

Tinita Samuels Dorsey pawned her ruby-studded high 
school ring for $20.
Daniel Kramer
Tinita Samuels Dorsey pawned her ruby-studded high school ring for $20.
With 1,371 stores in 37 states, Irving-based ACE 
Cash Express dominates the check-cashing industry.
Daniel Kramer
With 1,371 stores in 37 states, Irving-based ACE Cash Express dominates the check-cashing industry.

The buy-here-pay-here industry constitutes roughly 22 percent of the national used-car business and is growing fast. It could account for 30 to 40 percent of sales within a decade, trade officials say. Unlike traditional, franchised dealers, buy-here-pay-here lots tend to sell older cars and finance them themselves, offering interest rates upwards of 25 percent to people who normally wouldn't qualify for loans. The high rates easily make up for the fact that a third of buy-here-pay-here cars are repossessed; in fact, buy-here-pay-here lots are more profitable than their traditional competitors, Karger says.

They also uniquely benefit the poor, says Ken Shilson, founder and director of the Houston-based National Alliance of Buy-Here-Pay-Here Dealers. "Just because you have bad credit doesn't mean you don't need transportation," he notes. That's all the more true in cities such as Houston, where weak public transit leaves many people stranded. The lots are especially adept at appealing to low-income Latino immigrants with a lack of paperwork and a willingness to deal in cash.

But the allure of buy-here-pay-here can evaporate soon after purchase. Since 2003, the Texas Office of the Consumer Credit Commissioner has received 2,579 auto finance complaints -- four times as many as it received for pawnshops and payday loan companies combined.

Tammy Castro purchased a vehicle from Castillo Auto Sales last year without signing a contract or receiving the title. According to her complaint on file with the Texas Office of the Consumer Credit Commissioner, the car broke and the dealer refused to fix it. After she stopped making payments, however, the dealer wanted to repossess the vehicle. The credit commissioner's office informed her that there was nothing it could do because the transaction had been in cash. (Since then, Castillo Auto Sales apparently has gone out of business.)

Abuses in the buy-here-pay-here industry are difficult to prevent. More consumer education, stricter limits on repossession and tighter usury laws (Texas allows auto loan rates up to 26.75 percent) would help, Karger says. Still, car lots -- sometimes little more than a few rows of autos on a weedy strip of blacktop -- often artfully dodge any heat.

Soon after Tinita drove her Jeep off the lot, she noticed a soft spot in the mat beneath her feet. She peeled it back and found the floorboard was rusted out in a jagged circle large enough to give a bird's-eye view of the street. Furthermore, the ignition stopped working after a week and she had to crank the engine by sparking two loose wires. Driving produced a unique noise roughly conveyed as "squiggle, squiggle, squiggle."

Tinita returned to the car dealership and demanded that the problems be fixed. "Oh, don't worry about it. We're gonna take care of you," the owner told her. And then, Tinita recalls, he quickly added: "Look, I'm having a get-together at my house tonight. Why don't you come by? You know, I'm just inviting all the customers. We're just gonna have a good time; let's just go on and have some fun!"

Tinita immediately forgot about her car troubles, dressed up that night and drove down 1960 in a cacophony of squiggles to her car dealer's McMansion, a towering brick monstrosity. "It was the baddest house on the block," she says. And it was packed with people and staircases. "He had stairs coming all out everywhere," she says. "He had five different ways to get to one bedroom."

She found the car dealer, a fat, oily man, sitting with friends around a glass coffee table snorting coke.

That's when she left.

A few days later, she drove her ailing Jeep to the car lot. Every trace of the lot had vanished.

New car, caviar, four star daydream / Think I'll buy me a football team. -- Pink Floyd

The Hyundai was repossessed in late 1997 and the Jeep gave out, but Tinita's financial life was on the mend. Her mother used her own unblemished credit to buy a Geo Tracker for Tinita, who dutifully made the payments. A friend who worked at Wells Fargo bypassed Tinita's hot-check records and opened a new bank account for her. And most important, Tinita landed a sales job in 1998 at Southwestern Bell. It paid an impressive $8.50 an hour and came with top-notch health benefits.

Tinita was upgrading her personal life, too. She grew a little closer to her mom and began calling her supposed father, LeRoy Ford, "Dad." She also met a soft-spoken forklift operator, David Dorsey, and moved into his $295-a-month one-bedroom apartment in the rundown Garden Oaks Apartments on the south side -- "a nice little slum area," Tinita thought, but no place where a little cash couldn't transform a bachelor pad into someplace livable.

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Payday loans or title loans are very helpful if you manage them properly. Otherwise they can create more problems than they were meant to solve. These loans already have a high interest rate but with the passage of time the interest increase even more. So if you delay the repayment of your loan, you will pile up a huge amount of debt for yourself.

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