If you’ve ever turned on late-night television, you’ve seen the ads. They are ubiquitous in some parts of the country. Need cash? Drive in and give us your car title, we’ll give you a loan….at about 300 percent interest. Title loans from places like title loans jacksonville, are payday loans with higher maximum limits — up to $10,000 in some states. Apparently, there are four kinds of short term loans that would make sense to be aware of if you were interested in learning more.
Naturally, you’re thinking it’s a bad idea to put your car at risk of repossession with a high-interest loan. And these kinds of short-term lending products are under the microscope right now, as the Consumer Financial Protection Bureau is set to issue new rules about them.
These loans have their defenders, however. One is Vanderbilt professor Paige Marta Skiba, who’s written several papers warning against more regulation of title loans. Here’s an article on Vanderbilt’s website that makes a critical assertion: “The trouble with car title loans is NOT people losing their cars.” She claims fewer than 10 percent of borrowers lose their cars, a “small percentage.” Skiba and others surveyed 400 title loan customers “in partnership with a title lending firm” to get their results.
“The standard knock against car title loans is a toothless assertion that the transaction leads to people losing their cars,” the article goes on to say. (Here’s a link to the full study)
Contradictory information arrived from federal regulators this week. In the run-up to its new short-term loan regulations, the Consumer Financial Protection Bureau has been issuing a series of studies ; the title loan study landed Tuesday. After examining 3.5 million title loans made to 400,000 consumers (many are repeat customers), the CFPB found that one in five borrowers had their car seized by lenders. In other words, the trouble with borrowing money against you car is indeed the high likelihood that you will lose your car.
My full story on the study is below.
Another defender of title loans, Todd Zywicki of the George Mason University Mercartus Center, also asserted back in 2009 that repo rates were between 5 to 10 percent, and said that might not be so bad.
“While borrowing against one’s car may seem to be an inherently dangerous practice, actual experiences with auto title lending have proven it to be a relatively reliable and stable lending tool,” he wrote. “Furthermore according to the American Association of Responsible Auto Lenders, more than 70 percent of its customers own two or more vehicles, making repossession more of an inconvenience than a disaster.”
Toothless. Inconvenient. I’ll let you be the judge.
About one in five drivers who take out a title loan ultimately have their vehicle seized by the lender, federal regulators said Tuesday when issuing a report on the high-cost, short-term lending practice.
Title loans are similar to payday loans, but are secured by a car or truck, meaning the borrower risks losing her vehicle if she falls behind. More than four out of five borrowers fail to pay off the loan in the initial borrowing period, and two-thirds renew the loan at least seven times, according to the Consumer Financial Protection Bureau. A high percentage of those who renew repeatedly ultimately lose their cars and trucks, the CFPB warned.
Nationwide, the title loan industry is roughly the same size as the payday loan industry, amassing $3.9 billion in fees each year from consumers, according to the Center for Responsible Lending. However, in some states, the title business far exceeds the payday business. In Mississippi, for example, title loans brought lenders $297 million in fees, compared with $230 million for payday loans. In Alabama, title loans totaled $357 million, compared with $125 million. Both states are in the top six for short-term loan fee volume, along with Ohio, California, Illinois and Texas.
The median car title loan is about $700, and the average is $959 — larger than payday loans since it’s based on the value of the collateral. The typical annual percentage rate is about 300%, the CFPB says. While the loans are advertised as one-time stopgaps for strapped consumers to pay bills, only 12% of borrowers manage to be “one-and-done – paying back their loan, fees and interest with a single payment without quickly reborrowing,” the CFPB said.
“Our study delivers clear evidence of the dangers auto title loans pose for consumers,” said CFPB Director Richard Cordray. “Instead of repaying their loan with a single payment when it is due, most borrowers wind up mired in debt for most of the year. The collateral damage can be especially severe for borrowers who have their car or truck seized, costing them ready access to their job or the doctor’s office.”
The report examined nearly 3.5 million title loans made to 400,000 borrowers from 2010 through 2013.
The CFPB is preparing new rules to govern the short-term lending industry and has issued numerous studies. Most recently, they reported online payday borrowers frequently end up losing access to checking accounts when they fail to make payments. The new short-term loan rules are expected to be released later this year.
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