CFPB: One-in-Five Title Loan Borrowers Have Their Vehicle Seized by Their Lender
The majority of borrowers can't cover their loans in one payment, quickly leading to long term debt
A report from the Consumer Financial Protection Bureau (CFPB) found that one-in-five borrowers who take out a single-payment auto title loan have their car or truck seized by their lender.
The statistic, says the agency, is more evidence that these loans are dangerous to consumers who pay a high price for quick, small-dollar loans to cover themselves in an emergency or other cash-flow shortage.
"Our study delivers clear evidence of the dangers auto title loans pose for consumers," said CFPB Director Richard Cordray. "Instead of repaying their loan with a single payment when it is due, most borrowers wind up mired in debt for most of the year. The collateral damage can be especially severe for borrowers who have their car or truck seized, costing them ready access to their job or the doctor's office."
A typical auto title loan is about $700, but runs at 300 percent interest. Borrowers use their car or other vehicle as collateral by signing over their title to the lender. If the borrower can't repay the loan by the agreed upon date, the car is seized by the lender.
Often, though, the title loans aren't repaid by that date, and borrowers take out another loan to cover the cost. The cycle continues and the borrower stays in debt. More than half of borrowers need to take out four or more consecutive loans adding more fees and interest to the original amount owed.
While illegal in North Carolina, title loans are allowed in 20 states and repeat borrowing supplies two-thirds of the title loan industry business, according to the CFPB report.
The report data comes from 3.5 million anonymized, single-payment auto title loan records from nonbank lenders from 2010 through 2013. It follows previous CFPB studies of payday loans and deposit advance products, which are among the most comprehensive analyses ever made of these products.
For more details, the full report can be found here.