No. In West Virginia, loans for which the interest rate exceeds 18% APR are regulated consumer loans and can only be made by lenders who are licensed as regulated consumer lenders by the West Virginia Banking Commission. Regulated consumer loans are subject to maximum interest rates, which vary according to the amount of the loan and the existence and type of collateral for the loan. The range of maximum interest rates for such loans is from 27% APR to 31% APR.

The auto title loan industry arose in many states as an attempt to circumvent laws restricting interest rates on small loans. The businesses set up the loans to make them to appear to be something other than high-interest loans. Some companies use a sale and leaseback pretense. In these situations, the title pawnbroker draws up the documents to make it appear that the consumer has sold his vehicle to the lender and then leased it back from him. Others use a title pawn pretense. In these transactions, the lender purports to accept the title of the consumer’s vehicle as a pawn, hoping thereby to fall within a pawnbroker exemption to the consumer protection laws.

In State ex rel. McGraw v. Pawn America, 518 S.E.2d 859 (W. Va. 1998), the West Virginia Supreme Court of Appeals considered the legality of a title pawn scheme. The lender in that case had a pawnbroker license from the city of Martinsburg and was making “title pawns.” The lender charged an interest rate of 25% for a two-week loan – the equivalent to an APR of 650%! The Supreme Court concluded that the transaction in question was a “pawn” in name only and was, in fact, a consumer loan by an unlicensed lender at a usurious interest rate. As a result, the lender was not exempt from the West Virginia consumer laws.

The effect of this ruling was to make title loans, including title pawns, subject to the licensing requirements and maximum interest rates under West Virginia law. Most title lenders are unwilling to operate within these limits and,