Car Title Loans Trap Consumers in Perpetual Debt: Report

By Sarah Borchersen-Keto, CCH Washington Staff Writer

High-cost loans secured by car titles are trapping borrowers in perpetual debt through unaffordable balloon payments, high interest costs and the threat of repossession, a new study from the Consumer Federation of America (CFA) reveals.

Consumers are being charged upward of 300 percent annual interest for small cash loans secured by the titles of their fully-owned cars, the study notes.

Jean Ann Fox, CFA's director of consumer protection, urges states to close loopholes being exploited by title lenders and to reject industry-backed model legislation to legitimize predatory title loans.

The CFA survey of title lenders in eleven states and online found that almost half the states permit predatory title lending, either as the result of weak laws or the failure to close consumer loan loopholes.

According to CFA, in California and South Carolina lenders only make loans that are large enough not to trigger rate caps, while in Virginia, Iowa and Kansas lenders claim their loans are open-ended in order to skirt state limits on small loans.

The report, "Driven into Debt: CFA Car Title Loan Store and Online Survey," notes that Georgia permits title lenders to keep all the proceeds from selling a repossessed car. Meanwhile, Tennessee and Mississippi permit loans up to $2,500 to be due in 30 days.

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Posted August 29, 2005.