Car title lenders - there are two such companies in Iowa - can continue charging unlimited interest rates, typically 264 percent a year, until July 1. After that, they can charge only no more than 36 percent.
Cash-strapped Iowans will soon have to turn elsewhere to get emergency loans because LoanMax will be forced out of business, its owner said Tuesday, by a new Iowa law that bans triple-digit interest rates on car title loans.
Iowa lawmakers were jubilant Tuesday as Gov. Chet Culver signed into law House File 5, which reins in annual interest rates of 300 percent or more on such loans.
Right now, LoanMax can charge customers $251 to borrow $400 for about two and a half months. After July 1, the company will be able to charge only $33 for the same loan.
"That's not enough to keep the lights on and keep the employees and pay for their health insurance," said Rod Aycox, the owner of Georgia-based LoanMax, which has 12 offices in Iowa.
But House Majority Leader Kevin McCarthy, a Democrat from Des Moines, said: "It's a great day for Iowa and a victory for consumer protection. The car title loan practice is indefensible and nothing short of loan sharking."
A year later, she had paid back $1,180 at a 360 percent annual interest rate, but she still owed $2,762. The car was repossessed and sold for $1,300. Then she owed $1,816 - more than twice the amount of the initial loan.
LoanMax has logged about 75,000 loans since it opened its first store in Iowa three years ago, Aycox said. He said about 2,700 cars were repossessed when Iowans either could not keep up with payments or because needed repairs topped their car's value.
Title Loan Co., the only other car title loan company in Iowa, has one store on Army Post Road in Des Moines. It will close by mid-September, owner Eric Swanson said Tuesday.
Certain lenders will be capped at 21 percent, but others, including LoanMax and Title Loan Co., will be able to charge as much as 36 percent annually, according to the attorney general's office.
Bill Brauch, director of the attorney general's consumer protection division, said, "If they can't survive charging 36 percent interest, there is something wrong with their business model."
The legislation signed into law Tuesday was approved three times in the past in the Iowa Senate, only to die each time in the Republican-controlled Iowa House.
With Democrats winning control of the Iowa Legislature in 2006, the legislation sailed through this year - being approved 32-16 in the Senate and 84-12 in the House.
Aycox said Democratic leaders in the House "ganged up" on him this year because they were angry he gave a $20,000 contribution to a political organization connected with Rep. Christopher Rants, a Republican from Sioux City who was House majority leader in 2006.
On Tuesday, Carney said it is ironic that Iowa legislators would change the law on car title loans while leaving intact laws that allow so-called payday lenders to charge up to 350 percent and allow banks to charge fees of up to 900 percent for bounced checks.
LoanMax, also called LoanSmart, operates in four border states: Illinois, Missouri, South Dakota and Wisconsin. Offices there all charge higher interest rates than stores in Iowa. There are no LoanMax offices in Nebraska, where state law prohibits such businesses, or in Minnesota, which has a cap on interest rates.
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