Need cash in a hurry? Own your own car? Watch out for companies that advertise they’ll give you a loan, in exchange for the title to your car. They’re known as “car title lenders.” They charge wildly exorbitant interest rates — sometimes 185% or more. Worst of all, they tend to use tricks and traps, to take away your car. For example, they may demand payments in person, on a specific day. When you go to the store to pay, they spring the trap. They are closed. Next thing you know they have seized your car.
Or they may have a clause hidden in the fine print that says if you move, you have to notify them by mail — or they can repossess your car. So even if you make your payments after you move, and they know exactly where you are, if you didn’t give them written notice, they can take your car.
California Assemblymember Roger Dickinson is trying to improve protections for consumers who resort to car title loans, in a pinch. He authored a bill to cap the interest rate on car title loans at 36%. Florida already enacted a similar law, after military Servicemembers and their commands testified about the harmful impact of shady car title lending practices on military personnel and their families.
However, the car title lending industry fought back in California, and the bill was watered down to require prominent disclosure of the interest charges, instead of capping them. Plus it would require car title lenders to check consumers’ creditworthiness and use responsible underwriting guidelines, and prohibit them from reporting negative information to credit reporting agencies.
Sederia Lewis of Oakland CA testified at the Capitol in Sacramento, in support of Dickinson’s bill. Her written testimony stated the following:
Good afternoon. My name is Sederia Lewis. I live in Oakland. I want to thank Assemblymember Dickinson for authoring this bill. I lost my car and thousands of dollars because of predatory car title lending practices. This has been a real hardship for me, especially since I am disabled, and it’s often hard to get to work and to medical appointments.
I knew that I needed safe, reliable transportation. So I purchased a new 2007 Lexus. I paid over $37,000 in cash. I planned to own that vehicle for 10 years or more. No matter what else was going on, I kept it well maintained. That car was my lifeline.
When my husband and I split up, I needed to get established on my own. I needed cash to tide me over and meet immediate expenses. I went to a cash advance store, and when they found out I owned my own car, instead of giving me a loan, they told me I should contact 1-800-Loan-Mart.
At the time, my main source of income was Social Security disability payments, in the amount of about $800 a month.
On June 30, 2008, I went to the Loan Mart office in Encino. I wanted to borrow $3,500. The salesman tried to talk me into borrowing more — $5000. I told him no. I asked him how much the interest would be on the loan. He didn’t tell me. He just said it was “only simple interest.” I asked him how much it would cost to pay off the entire loan, and he said it would be a total of $4,515. That sounded reasonable to me, so I agreed to the loan. He gave me a document to sign, without showing me the interest rate, and I believed him that it reflected our agreement.
It was only later on that I found out that the real cost of the loan was going to be $13,383 and that the interest rate was 91.86%. That’s ridiculous. If I had known the interest rate was that high, I would never have agreed to the loan.
My monthly payment was $383. I made several payments, then missed one, and then made more payments. In December of 2008, I made two payments, both for $383. But the amount past due and the penalties kept adding up. In January, I received a billing statement from Loan Mart that said the total due by January 28 was $1,222.
But I didn’t even get a chance to make that payment. That’s because on January 19, my car was repossessed. With no warning. I thought at first it was being stolen. Then they sold my car at auction.
According to an attorney who researched my case, the Blue Book price for my car, at auction, should have been about $22,000. But Loan Mart sold it for just $16,500. On top of that, Loan Mart charged me an extra $460 for the repossession, and another $422 for a key. For a car that was worth more than $25,000 at retail, if I had been able to sell it myself, I got just $9000.
That small car title loan — which they said would cost me just $4,515, instead cost me my car, plus more than $7000 in direct losses. It cost me my mobility, and my main means of looking for work. I now also have a repossession on my credit report, which makes the price of credit for everything skyrocket.
I think there should be caps on the interest car title lenders can charge. 36% is plenty. At the very least, they should be required to adopt more responsible lending practices.
Assemblymember Dickinson’s bill is a significant step in the right direction, and I urge you to please vote AYE.
The CEO of 1-800 LoanMart appeared and testified against the bill, claiming the loans are better than going to a loan shark. As one title lender told the Los Angeles Times, “At least we don’t break legs.” Despite Sederia’s testimony, and support from CARS, the bill failed to pass. As a result, consumers in California who have fallen on hard times and get car title loans still face sky-high interest rates and risk losing their only means of getting to work or medical appointments.
What can you do to avoid falling into the car title loan trap? First, join a credit union. Don’t wait until you need an emergency loan. Work with them to improve your credit. Most credit unions offer classes and personal assistance with credit-building.
If you do need an emergency loan, ask your credit union to consider a small loan at a much more reasonable interest rate. In general, credit union loans are capped at 18% interest — making them much more affordable than an 185% interest loan — without risking your car.
Another option — find out how much your car is worth, using a guide such as Kelly Blue Book, Truecar, or Cars.com. Consider whether you may be better off selling it and buying a less expensive vehicle. If you are going to lose your car anyway, you are better off selling it yourself, instead of having it repossessed by a car title lender.
“Title loans’ interest rates literally out of control “ — Los Angeles Times, February 8, 2011
Did a car title loan company try to scam you or take your car? CARS is working to reform car title lending practices, and we want to hear from you. Here’s where to contact us: