States take on 'car title loans'
Florida set limits in 2000 that all but eliminated the industry, which loans cash with cars as collateral. But others still struggle.
Published March 6, 2008
MONTVALE, Va. - The Dodge pickup has rust on the tailgate and a Harley-Davidson sticker on its back window. Beside it sits a Honda Accord with a big, white butterfly on the windshield and American flag butterflies on the trunk.
Their owners didn't pay off a car title loan, so they're getting ready for auction.
For years payday lenders have been the bad guy in the predatory lending debate while their close cousin, car title lenders, have cruised along unnoticed - and unregulated in several states. Many efforts to regulate the industry have failed as the lenders pour hundreds of thousands of dollars into legislative campaigns.
Advocates for the poor say they don't have the resources to fight both industries at the same time. Once the payday lenders are in check, they vow to go after car title lenders.
They say title loans - short-term, high interest loans secured by a car title - can be even more disastrous than payday loans.
"They can both trap borrowers in long-term debt, but with a payday loan the collateral is a personal check. With a car title loan, it's the family's probably most important asset," said Leslie Parrish, senior researcher for the Center for Responsible Lending.
Car title lenders operate in nearly half the states, about a dozen of which have specific laws regulating how much the lenders can charge, Parrish said. Where there are no laws specific to the industry title lenders operate under regulations governing pawn shop brokers or other lenders, except in Virginia, where car title lenders have clinched onto laws that regulate credit cards.
By structuring their loans as open-end credit, the lenders can charge triple-digit interest and whatever terms they wish as long as they don't charge anything for 25 days. In most states, the entire loan is due in one month, but can be rolled over and new fees charged.
This year, legislation was introduced in at least eight states, from Florida to South Dakota. Last year, 16 states took on car title lenders, and six of those - Iowa, Mississippi, Nevada, Montana, Oregon and Utah - passed some sort of regulations.
Some have taken on payday and car title lenders at once. New Hampshire legislators are close to an agreement on a 36 percent interest rate cap on payday and car title loans. Congress banned payday lenders, car title lenders and tax refund anticipation loan companies from charging members of the military or their families more than 36 percent interest.
While industry opponents want caps on the amount car title lenders can charge, they fear regulating the industry will legitimize it the way it has payday lenders.
States that have regulated payday lenders have seen a proliferation of storefronts. Last year, 24,000 payday lenders made about $40-billion in loans, according to the Center for Responsible Lending.
Republican Delegate Harvey Morgan championed the 2002 law that opened Virginia's doors to payday lenders and now regrets it. He hopes car title lenders will go away as legislators pass stricter regulations, but he's not optimistic.
"There's always going to be one more standing in line to come in and separate people from their money," he said.
Car title loans
Collateral: Lenders require the title to your car, which they put a lien on, and a copy of the keys in case they end up repossessing it.
Cost: Lenders usually charge around 300 percent interest, a membership fee and a small fee for recording the lien. The maximum loan normally is about $2,500. Since 2000, Florida law has limited title loan interest charges to 18 to 30 percent a year, depending on the loan amount.
Regulation: Car title lenders operate in more than 20 states. A dozen states have limited the annual interest rate on all small loans, usually at 36 percent, and payday and title lenders do not do business in those states.
Legislation: This year, eight states are considering new or tougher regulations.
[Last modified March 5, 2008, 23:45:57]
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