Acme Case

Supplemental Case 2

Acme Title Pawn*

Joe reflected on his situation at Acme Title Pawn while mowing his lawn. He had been working there for about a year, but was having ever-greater reservations about his job. During all of those years of struggling to care for his family while planning for, attending, and ultimately graduating from college, he never envisioned a career at a firm like Acme Title Pawn. He wrestled with the question of whether to quit. His doubts about the business began by the end of his very first day at work and they had only increased since then. As he went back into his house for a breath of cool air, he once again reviewed his situation.

Joe Collata was 36 years old with a wife and three children. His first full-time job was as an accounts payable clerk at a medical center. He worked there for four years. He quit that position to accept a similar position at a printing plant in the town where his soon-to-be wife was employed. He remained employed with that firm, Ace Printing, for a total of nine years until he lost his job due to downsizing. By that time, he realized that he needed a college education if he hoped to have a meaningful career with some degree of job security. While attending college part-time at night, he held a succession of jobs, none of which lasted more than a year. He was a clerk in a hospital, an appliance salesman, and an accounts payable clerk for a small manufacturing firm. Approximately one year ago he accepted the position of accounting staff member at Acme Title Pawn.

At the time he accepted the position he knew virtually nothing about the title pawn industry. He believed this firm might offer him the possibility of increased responsibility, an advantage not offered by many of his previous positions. Also, the pay was good compared to his previous positions. Six months after beginning his employment with Acme, he graduated with a degree in accounting. It had been a struggle, but Joe hoped that soon there would be a payoff. Now he found himself wondering: "is this it?"

He had become disenchanted with the title pawn industry in general and Acme in particular because of activities that he believed to be unethical. It was apparent to him that the industry preyed on the poor and uneducated. Joe had learned a bit about usurious interest rates in his business law class, but he had imagined that they were of concern only to the loan shark on the street corner. The rate on his only credit card was 30 percent annual interest on the unpaid balance, and he was not aware that interest rates could legally go much higher than that. He was truly shocked when he found out how Acme conducted business and that it was legal--for the most part.

When a customer needed a loan, Acme would lend money, holding the title of the individual's automobile as collateral. The maximum amount Acme would lend was usually 50 percent of the car's book value. The customer was allowed to keep driving the car as long as the specified payments were made. The standard loan was for one month with an interest rate of 25 percent compounded monthly. Therefore, if a customer borrowed $1,000 on the car, $1,250 would be due at the end of the month or the car would be seized and sold at auction to satisfy the debt. Occasionally, Acme would extend the credit for several more months as long as the interest was paid every month. A customer borrowing $1,000 for a four-month period would have paid $1,000 in interest and still owe the $1,000 principal at the end of the fourth month. At that time, or at the end of any month when the principal remained unpaid, the vehicle could be seized.

The business of repossession can get ugly, so subcontractors were employed to perform that service in each city in which Acme maintained an office. State laws generally required that the debtor be paid the difference between the amount owed and the proceeds from the sale of the vehicle, minus any expenses incurred. Acme paid the repossessor an average of $100, a locksmith was typically paid $25, and the clean-up and sale of the vehicle at auction usually cost Acme about $75 to $100. Sometimes a transportation charge was assessed depending on the distance from the seizure location to the auctioneer.

Joe soon learned that the company occasionally did not return this excess to the debtor. If the debtor called and asked about it, a check would be sent. If the debtor did not ask, the company often did not send the check. It seemed to Joe that the decision whether or not to send the check was based on the likelihood of a complaint being made by the debtor.

The individuals who pawned their car titles generally were people who had no alternatives. Often they had bad credit or no credit, but Acme did not investigate credit if a clear title was presented. Acme seemed to be the lender of last resort for most of its clients, although Joe suspected some would find other alternatives if they understood the cost of doing business with Acme. But most clearly did not understand.

The company targeted minority groups, locating offices in poorer neighborhoods in most cities in which they did business. In Florida, Acme's business was highly visible in Hispanic neighborhoods. The company directed its marketing efforts toward gamblers in areas likely to have down-on-their-luck gamblers, such as Nevada and the Mississippi Gulf Coast. The company presently operated in twelve states. If a state in which Acme was operating lowered the legal interest rate that could be charged to less than 25 percent per month, Acme stopped doing business in that state. Acme suspended operations in North Carolina and Kentucky for this reason.

Acme had many difficulties in the field, as one would expect, considering the nature of the business. There had been a number of armed robberies at Acme locations even though very little cash was kept on the premises. Advertising that stressed "cash for your title" might have misled would-be armed robbers, the company had toyed with the idea of emphasizing payment by check instead of cash in their ads--especially billboards--to discourage robbers. Acme had also been plagued with very high employee turnover in most branches. Occasionally, an incident of embezzlement was uncovered at a branch. No one at the home office seemed especially surprised when such activity was uncovered.

It appeared to Joe that the company did not attract very