Driven to the Poorhouse: How Car Title Lenders Prey on Americans

The cheerful come-ons seem more cheesy than sleazy — “Looking for a New Way to Borrow?” “Apply Now-Get Cash Today!” “Go From $0 to Cash in Less Than an Hour” — but these are not the friendly offers of local diversified banks. They are the insidious pitches of companies that do one thing very well: make car title loans to Americans desperate for cash.

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Car-dependent transportation systems create the perfect environment for car title lenders to feed off low-income Americans.

These highly specialized lenders do a gangbuster business, pulling in hundreds of millions of dollars in loan payments annually. Still, the no-savings-just-loans outfits are little known to most middle- and upper-income families. That’s because their business model entails opening tens of thousands of storefronts in poorer neighborhoods, and throwing up websites online, to target families who need cash but whose only significant asset is a car, often a high-mileage beater. They sell their customers high interest rate loans against some portion of the value of their cars, usually without a credit or income check. And they make those loans at unconscionable rates that can hit 600 percent on an annual basis.

Hard to believe, but it gets worse. When borrowers default, these companies swoop in and “foreclose” on their cars. This is a simple and speedy process because, before handing over the cash, they take both the car’s title and duplicate keys and sometimes install a tracking device on the vehicle. Repossessions can be done in terrifying or violent ways, as the National Consumer Law Center (NCLC) has documented [PDF]. But even when the repossessions are done peacefully, they leave the car’s now former owner with the sudden and daunting challenge of getting to work on time — or getting to work at all — in a transit-poor community. A car title loan victim can quickly find his or her job repossessed along with the car.

In an America that is so car dependent — 50 percent of us have no public transit option to get to work — and an America with plenty of people struggling to make ends meet with or without a job, it’s a brilliant, if despicable business model.

Not every state allows car title loans in this fully predatory form, but in those that do, lenders have mushroomed with banking deregulation. Companies like Cash America, North American Title Loans, New Century Financial, and Title Max market their loans aggressively in urban, especially minority, communities. Cook County, Illinois is home to several hundred brick and mortar locations that make loans with an average APR of 263 percent and repossess one of every five cars used as collateral.  Until New Hampshire regulated the industry, 10,000 loans totaling over $7.5 million were made in that small state in a single year.  Car title lenders repossessed over 17,000 cars in one recent year in Tennessee alone.

These loans can be structured in ways that make it surprising that default rates aren’t higher. Initial terms are usually a month, but loans are frequently rolled over, with further interest payments charged if the borrower is unable to repay quickly enough. A $2,000 car title loan can cost $5,250 in interest over 16 months. Yes, with repayment of the principal, that’s $7,250 to borrow $2,000.

Even smaller amounts of borrowing can snowball with devastating consequences. A single mother in Georgia took out a $450 loan from Atlanta Title Loans to help make her utility payments. She was charged $112.50 a month in interest until, unable to keep up four months later, she found the firm had repossessed her car in the middle of the night, and she could no longer get to work. A Virginia woman who borrowed $900 against her car just last year has already paid $4,000 to the car title company and still owes the full principal balance.

Car title loans are just one of a host of ways by which our existing car system sucks wealth out of poor and working class communities. Auto dealers targeting lower income customers often provide predatory loans on site and charge prices for used cars well above Blue Book values. Insurers can and do charge residents of poorer zip codes exorbitantly higher rates regardless of age or driving record. And while minimum wage earners or consumers with modest incomes might seem to be an unattractive customer base, there are a lot of households to extract wealth from when 100 million Americans make $25,000 or less and 90 percent own a car. Millions of customers times thousands of dollars of interest payments and thousands of dollars of repossessed car sales equals a lucrative market.

When you cross a car dependent transportation system with an under-regulated banking industry, you allow the wholesale looting of poorer American neighborhoods.

Some good news came with the midterm election: the number of states that have outlawed car title loans or some of the most egregious lending practices rose to 31 as Montanans voted yes on a rate cap for car title lenders, dropping the maximum from 400 percent to 36 percent (read the ballot text).

A variety of national organizations, such as the NCLC and Consumers for Auto Reliability and Safety, have been diligently educating consumers and encouraging stronger regulation of car usury. So, too, have local and regional groups such as the Virginia Poverty Law Center and New Hampshire Legal Assistance, key since the new Consumer Financial Protection Agency leaves regulatory power in the hands of the states.

Tougher rules are needed, and yet lower income Americans will remain dependent on the budget-busting automobile until we also provide better, more equitable transportation options.

Anne Lutz Fernandez, a former marketer and banker, and Catherine Lutz, an anthropologist at the Watson Institute at Brown University, are the authors of Carjacked: The Culture of the Automobile and its Effect on our Lives (Palgrave Macmillan).

  • Wow, the most expenjsive cargo bikes I sell are 2,000. For half that price, you can own free and clear a very fine bicycle (and accesories to carry kids and stuff). All we’re missing is the infrastructure to allow low capital input to transport oneself (and one’s family).

  • I didn’t think it possible, but we’ve found a more despicable “legal” loan shark than the payday lenders. Here in D.C., ads for these reprehensible enterprises flood the airwaves, especially on late night television. What’s even worse, half the commercials portray scenarios where people take the loans for a frivolous consumer binge – a shopping trip, a vacation, one even had a guy “in the club” trying to impress people with his spending. Hard to imagine *that* being a wise investment. Sadly, most of the people that go for these loans probably aren’t getting it for something so trivial, but rather a sudden urgent expense such as a medical bill, or even basic necessities like rent and utility bills.

    I personally would love to see all such predatory lending halted, or at least very seriously curtailed by state and local governments. At least it is good news that consumer groups are trying to educate people about the risks such “easy” money brings.

  • Mike

    There’s never been a time with more repossessions on the books than now (i.e. http://repofinder.com). To blame it on payday lenders is completely misguided. What’s the difference between Bank of America lending money irresponsibly and ABC Payday loans doing the same thing. Welcome to America.

  • Driver

    Why is it “lending money irresponsibly” and not “borrowing money irresponsibly”? Why can’t people be held responsible for their own poor or misguided decisions? I agree that many of these businesses are predatory scum, but it is up to us to protect ourselves and our money and make sound decisions. We can’t count on society to do it for us.

  • Al

    Knowledge gap. The lenders know all the ins and outs that will allow them to extract the maximum cash from the borrowers, who know very little and are often pressed for time. A scenario ripe for exploitation.

  • calwatch

    At the very least they should have the same regulations that we give to pawn brokers. Pawn shops are limited in the interest they charge and the fees that one has to pay. They aren’t much different from pawn shops and should be held to the same standard.

  • Holy fuck! Insanity in the details. This is an important piece in the poverty-sprawl-car dependence-lack of transit options puzzle. Thank you for this.

  • Jacobi Saunders

    You offer a lot of skewed and inflated statistics (who in their right mind takes out a loan at 600%APR? Something else is going on that puts these loans in demand), but there is no mention of solutions or alternatives. It’s as if NOBODY should lend to these communities, for their own good, period. I think most folks of low-income are just as aware the risks of borrowing as anyone in the middle or upper classes, perhaps more so. They deserve access to credit too.

  • clever-title

    Shouldn’t we be thanking the title lenders for taking cars off the road and creating more transit demand?

  • Bob Davis

    I would guess that the “title lenders” aren’t really taking that many cars off the road; they just resell them to folks who aren’t quite so far down the food chain. One possibility of taking some of the clunkers out of the traffic pattern is if they have to be “Smog Checked” before resale (as we say here in California) a pollution test might show that repairs to clean up the exhaust would cost more than the vehicle is worth.

  • Anonymous

    Sometimes we tend to overlooked the hidden dangers of car title loans. As most people can see, the risk of losing your car to a car title lenders is pretty high, especially given the astronomical interest rates charged and the typically limited financial means of most title loan borrowers.

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  • Boyd Johnson

    This is why we should be extra careful in buying a new car. It’s good to get car loan information before buying a car on a loan.

  • Shaniqua

    I will be very careful now. This is the first time I’ve come across the issue of fraudulent car title lenders, so I’m glad I saw this article before falling victim to one of those scams.

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    A debt-ridden father doused himself in petrol and turned himself into a
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  • Sodak Man

    I just found out this happened to my daughter. 700 dollar loan and one year later its is over 3000 dollars. Granted she never paid but now she came to me for help and IDK what to do. I talked to them to set up a payment plan or settlement and they simply stated NO and we want the car or full dollar amount. If we get the car we will still add fees to amount owed because of car recovery costs. Unbelievable, i asked for a supervisor and was told no. This was after they showed up at the ex’s house and rifled through the mail in the mailbox to see if she got mail there. She lives out of state…

  • This seems to me like predatory lending at it’s finest! I would love to see them try and set up shop in my neighborhood! Oh wait, they wouldn’t because I don’t live in a lower class neighborhood where they would be able to come in and exploit poor, unsuspecting consumers.. People in these types of lower class neighborhoods need to be educated that these Payday people are not their friends in any way, shape or form. In fact they want people to miss their payment so they can profit off of their vehicles, they don’t care if they transportation or not! It just seems to me that this sort of lending should be outlawed all together. Thanks for the post. Here is some related info I found useful: http://creditletters.eu.pn/help-my-car-was-repoed/

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  • James

    I worked for Cash America, and this is a skewed article at best. I used to think that title loans were horrible too until I worked in the industry (disclaimer: Cash America doesn’t do them anymore). But most people that get title loans have newer cars, because “old beaters” aren’t worth anything. This article puts all of the responsibility on the lender; what about the borrower’s responsibility? And the banking industry’s practice of not loaning anything under $1500??? Sometimes people just need some money fast. Now, the wise borrower would pawn something of value first and foremost. But, what if they didn’t have anything of value except a car or their job (payday loans)?? What is their alternative? Many folks are in the pawnshop or title loan store because they don’t know how to manage their money in the first place. I didn’t always have much money but I lived very frugally. My wife can stretch a dollar farther than any human being alive. So I don’t have a lot of pity for the person with a decent job, yet “they can’t seem to make ends meet” as they pull their latest Iphone from the latest Michael Kors designer purse and then brag about how they just got a 70″ flat screen/ Smart TV and then climb into their Cadillac Escalade.

    Why don’t you focus on BANKS and their predatory fees, and how they take “extra time” to process a deposited check if you deposit on Friday so that it doesn’t post until Monday, yet all of your checks that you have sent out to pay bills post on that Sunday….hmmm? Come Monday, there could be 3 or more bounced check fees. But, I see that one of the authors of this article came from the banking industry so how should we get a fair point of view.
    And anyway, whatever happened to personal responsibility?

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