Car Lenders Prey on Working Class, Poor

Predatory lending practices have been making headlines lately as a result of the home-mortgage crisis. One overlooked lending practice, however, has been that of car title lenders, who grant loans after placing a lien on the title of the borrower's car and getting a copy of the keys in case repossession becomes necessary.

Much like payday lenders, these companies make money off people in tough financial situations, with one important difference: A payday loan is based on the promise of a personal check, whereas with a car-based loan, the collateral is sometimes the family's only vehicle and most important possession.

Not only do individuals and families become ensnared in long-term debt with exorbitant interest rates (sometimes as high as 300%), they stand to lose their primary means of getting to work, school and the grocery store.

Legislators have tried desperately to reign in the irresponsible practices of car title lenders, but face numerous challenges as they also try to deal with the more prevalent predatory behavior of payday lenders. It doesn't help that lenders of all stripes funnel hundreds of thousands of dollars into legislative campaigns to protect their interests.

According to the St. Petersburg Times in Tampa Bay, Fla., 16 states battled with car title lenders last year, and only six managed to pass any type of regulation: Iowa, Mississippi, Montana, Nevada, Oregon and Utah. So far this year, eight more states have introduced legislation aimed at lenders.

The primary goal is to cap interest rates at somewhere around 36% to keep lenders from smothering working people in debt they very quickly cannot afford to pay down.

Let us know what you think about the practice of car title lending, and be sure to find out what the laws are in your state before ever borrowing against your car.

States Take on 'Car Title Loans' (St. Petersburg Times)

Comments

[zoe]

300% interest rates? That is insane. I'm not familiar with the car lending rates in Canada but there was a similar issue with payday lenders. Although it was hyped up in the news, I'm not sure any changes were made.

But, like you said, putting up your car for collateral puts families much more at risk. Lose your car, can't get to work, lose job, no money, more debt....vicious circle.

z

[Ben]

For whatever reason, I was actually thinking over a similar issue during my morning commute. I do agree that the title-lenders are little more than vultures preying on the people who can least afford these types of loans...I don't think that these exhorbitant rates deserve a place in society. That said, I don't blame the title-lenders alone...credit is so easily available that individuals salivating over a new or late-model car can 'buy' the car they should know they can't afford. Everyone wants to keep up with the Jones, even when nobody can. When they can't pay for it, you and I do. And no, this isn't some richie saying this, this is a working-class citizen who has been driving the same used car he bought 13 years ago.

[JP]

I agree strongly, this is a big problem. These lenders are basically taking advantage of people's misfortunae and ensalving them financially. This needs to be reigned in quickly

[JP]

Ben this has nothing to do about buying a car you can't aford. It is about high interest loans being secured by your car.

[Dan]

What's that you say? Large financial institutions preying on the poor and uneducated!? Never! I don't believe it!

[Infosaur]

This is weird,,, what ever happend to "if you can't make payments just reposses the car?"

I know residuals are hurting, but this is indentured servatude.

I'm into one of my cars for about $7k still. But I'm not upside-down. And even though it might be a tough car to sell in a down market (2 seat convertable) if I somehow couldn't:

1.) make payments,
2.) sell it off,

Couldn't I just turn it over to the bank?

And I know it sucks but if you can make a payment on a car ($300-$400/mo) plus ins on that car ($150-200/mo) couldn't you save up enough to buy a beater if you were that desperate? (say, a 92 Dodge Shadow with peeling paint and duct taped windows?)

I don't know how people get into trouble this deep.

[J]

I don't get it.

Isn't that just how money works?

[Mr X]

The issue isnt the rates, as its a choice people make, and what lawmakers try and do is regulate choice. They never have a solution for people who are in need of quick cash loans, they only make speeches from the ivory tower they live in. People have the choice to NOT get a Car Title loan as much as they have the choice to get one. People with bad credit put themselves in that position whatever the case may be.

These loans are a option for people who have proven they are not responsible debt re-payers. People who find themselves in need of a Car Title loan are a risk, and with that risk comes the higher rates. Its simple, as having access to low cost money is NOT A RIGHT.

I could go to a gas station and buy coffee for a buck or to a Big Chain Coffee place and pay 5 bucks. Its a choice.

People love to scream at the high rates people have, but never address the risk the lender takes in loaning the money, nobody ever mentions that people just dont pay their debt and cost the lender money day in and day out with defaulted loans.

If people could manage money and live within their means, they would not need this loan because if they focused on paying their bills, and not getting into credit debt or managed their credit better, they wouldnt not be in the spot of needing a high rate loan.

Access to money is not a right. if the lawmakers want to regulate them, better have a plan to make money available to the lower credit worthy folks, and then when those loans default and people dont pay, they might have an idea of what lenders are up against.

[Paul]

I thought the next President was going to give us: free healthcare, free gas, free houses, and free cars!? How can anyone be held finanically responsible for their decisions!? What kind of evil world are we living in!?

[Paul]

I thought the next President was going to give us: free healthcare, free gas, free houses, and free cars!? How can anyone be held finanically responsible for their decisions!? What kind of evil world are we living in!?

[Troy S.]

I frequently see the cost of basic living going up (food, gas, telephone, health care and school etc), paychecks are not going up to counter the rising cost of living. An owner operator truck driver for instance takes a big hit to the wallet when fuel prices spike. Loads don't pay more when fuel goes up. If you're already on the financial edge, that price spike can put you in a place you cannot easily overcome. Add an unplanned maintenance problem and a sick kid to the mix and you're in trouble.

Sure, we can blame it on poor financial decisions, easy credit and bad lifestyle choices. The truth is though, is that's it's getting harder to just get by.

High interest car title and paycheck loaners know this and take advantage of people IMO. The problem is that they too are out to make a living.

[Emma]

I don't know about other Car Lenders, but I dealt with Auto Cash USA a few months back and they were wonderful. They answered any questions I had and we really helpful and they were actually quite affordable.