Car Title Loans

Car-title loans –likely the most familiar among popular predatory lending schemes – are short- term loans secured by the borrower’s vehicle, which can be repossessed in the case of default payments. Car-title loans tend to be small, over-secured loans.

Car-Title Loans charge up to 1% daily interest –360% APR –even though collateral (the car ti and extra keys) is presented. If a payment is late, lenders may begin the repossession process.

Who is Affected?

It is difficult to ascertain the number of Iowa cars repossessed due to defaults on car-title loans. Car-title lenders must have licenses from the Iowa Division of Banking, but they may hold different license types based on the specifications of their business. Because the Division of Banking keeps records on repossession based on license type, we do not know which loans were secured by car titles. Most car-title lenders use regulated loan licenses, as do some non-car-title lenders. Two studies of Iowa car-title loans estimate that number of Iowans who have lost their cars due to car-title lending ranges from 16002 to 2000 or more.

Legislation

Last year, the Iowa Senate passed a Car Title Loan bill that would have capped secured car- title loans at 21%. The bill was not debated in the House.

In 1998 Kentucky became the first state to limit rates, fixing them below 36% APR. Florida followed suit, setting rates at 30% per annum for the first $2000 borrowed. Alabama, Georgia, Mississippi, and Montana limit interest at 25% for the first few months –or until the loan is paid –which still allows rates to reach 300% APR. Tennessee law permits rates totaling 264% APR.

While capping interest rates is the common focus of state legislation, the Center for Responsible Lending suggests that states consider protecting consumers by mandating longer loan terms and permitting repayment in installments or penalty-free prepaying.

Filed under Loan | Car Title Loans

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