Florida legislators tried to keep the car title loan business out of their state in 2000 when then-Gov. Jeb Bush (R) signed a bill banning high-interest rate loans. But where there’s a buck to be made, unscrupulous companies will find a way around pesky consumer-friendly laws, and TMX Finance appears to have done just that.

TMX, which operates 26 InstaLoan businesses across Florida, can charge only 30% interest on its loans in that state. To make up the difference from that already-high rate to the average 150% charged by car title lenders, TMX requires borrowers to purchase costly insurance on their cars from them, with the insurance company rebating much of the premium to TMX, according to an investigation by ProPublica.

“The sale and financing of the credit insurance as part of these auto title loans is deceptive and abusive,” said Birny Birnbaum, the executive director of the nonprofit Center for Economic Justice and a former associate commissioner at the Texas Department of Insurance. TMX claims the purchase of insurance from them is voluntary, but the investigation found five borrowers who unsuccessfully tried to avoid buying the expensive policies. In states that allow higher interest rates, TMX doesn’t require the purchase of insurance to obtain a loan.

Car title loans are an incredibly expensive way to borrow money. Borrowers use their car as collateral for 30-day loans that range from a few hundred to a few thousand dollars. If the borrower can’t repay the loan, he or she can pay only the interest due and roll over the loan. A TMX executive testified in 2009 that the typical car title loan is rolled over eight times.

If a payment’s missed, TMX repossesses the borrower’s car. Sometimes borrowers get in so deep that they just give up. ProPublica said one Florida woman borrowed $3,100 and made $2,600 in payments, but after rolling her loan over seven times she still owed $3,900. She gave her car to InstaLoan.

“TMX Finance appears to be violating the law and taking advantage of families struggling to survive in these hard times,” said Florida Legal Services attorney Dorene Barker.

Florida’s not the only state where TMX has adapted its policies to get around consumer protection laws. In Texas, another TMX subsidiary offers “cash for free” in cities that restrict car title loans. But if the borrower can’t pay the loan at the end of the month, they’re sent to another TMX office outside the city to get a loan with an interest rate as high as 310%. In Ohio, the company found a loophole that allowed it to avoid restrictions on title loans.

-Steve Straehley

To Learn More:

Insta-Loophole: In Florida, High-Cost Lender Skirts the Law (by Paul Kiel, ProPublica)

The Next Investment Bubble…Used-Car Loans (by David Wallechinsky and Noel Brinkerhoff, AllGov)