How to Fight Back Against Predatory LendersCredit: Photo by Mathieu Turle on Unsplash
Motor vehicle equity lines of credit, also known as auto title loans are a class of lending known as asset-based lending, which includes pay-day, and sub-prime mortgage loans. Lenders base their decision of whether to lend, and how much, on the estimated value of collateral, not on the consumer's ability to repay the loan. According to the Center for Responsible Lending, Americans take out about 2.0 million car title loans each year, at an average of $1042.00 per loan. Borrowers pay an estimated $4.3 billion just in annual fees, and one in six borrowers has a vehicle repossessed.
Auto title loans today are legal in 18 states. In two of those states, GA, and AL, the transaction is actually a pawn. This means technically, you are pawning your vehicle. This gives lenders the power to sell your vehicle for more than you owe them, and keep the difference. States that currently allow title lending include: AL, AZ, DE, GA, ID, IL, LA, MI, MO, NV, NM, SD, TN, UT, VA, and WI. Four states: CA, KS, SC, and TX allow title lending through a legislative loop-hole. Two-thirds of the states with the highest poverty rates are in the southern US., where title loans are most common.
Interest Rates, Simplified
What these title lenders do not clarify from the start is the impact of their interest rates. These excessive rates average about 12%-25% per month. This translates to an average APR, (Annual percentage rate), of 144%-300%. That's up to 36 times the standard rate on a bank, or credit union loan, which is typically .33%-2% per month, (or 4%-24% APR). At title loan rates, a loan on $1000 will cost about $120-$250 per month, or $1440-$3000 per year in interest. Whereas a loan from a bank, or credit union would cost $3.30-$20 per month, ($40-$240 per year).
Harassing Calls are Only the Beginning
Title loan borrowers generally have low, to moderate incomes. It is typically much more feasible for them to pay the monthly fees to extend the loan, than to pay it off all at once. This ends up costing more in the long run, and initiates a cycle of debt. Repossession of a vehicle is a looming threat for the borrower. As title loan contracts may, or may not spell out, repossession of property, does not relieve the loan itself. The lender's access to a borrower's bank account is a foundation for disaster. By monitoring when funds are available, lenders trespass on client accounts. This leads to account disruptions, such as overdraft fees, and further debt, which affects various consumer credit scores. Consumer credit scores can impact auto insurance rates, employment options, economic opportunities, influence where consumers bank, and potentially determine residential options.
Avoiding these loans is the best solution. If you have already entered a title loan, it is in your best interest, to either pay it off, or make scheduled payments. At the least, it will give you some leverage later on if you pay an amount toward the principle, in addition to the monthly interest rate. You will be able to use this leverage if you are still tied into the loan, a year, or so later, when you can re-negotiate a lower interest rate. Read your contract thoroughly. Do not give the loan company your bank account information. If you have already done this, assign that account specifically for those payments, and open a new account for regular transactions.
Don't be provoked to the point of anger, and frustration by harassing calls. Ask to speak to the manager, to clarify their terms. Plainly state your situation to the manager. More than likely, they will work with you to break down whatever payment is due to make it more manageable. If you are not satisfied with the manager, ask to speak with the district manager. If you are still not satisfied, report a complaint with the consumer protection agency. You can also file a complaint at the Federal Trade Commission website, or contact your state's attorney's general office. Keep payment receipts, and document your calls. These records will give you solid footing when speaking, or dealing with the loan company, and will be necessary to support a registered complaint.