photo: yahoo
One of the ugliest legacies of the 2008 market crash is the increasing numbers of title loan outlets.
The practice, which sees a customer asking for money, in lieu of signing off on the title to their car as collateral, has often come under fire from watchdog groups and consumer protection agencies alike.
As if leaving title to a car, worth often many times more than the money requested behind as collateral was not enough, it is the obscene rate of interest charged by the title loan company that should really preoccupy people. These companies are able to get away with this since many states have foregone legislation or not renewed it, that disallowed high interest rates on loans, which in previous times was banned as usury nationwide.
But how can these companies do this? Very simply actually. People are desperate when they go to these places to ask for money. But then they are equally desperate to regain title to their cars after the loan is issued. In many cases their car is the only way they can get to work and for some even the place in which they live.
The squeeze the customer is in, is where these companies thrive. In some states, like Virginia, outraged legislators advanced a bill banning title loans practices that passed the lower house in the state, but was promptly stalled in the upper house of the state legislatrure until 'modifications' were made to allow for these business not to be shuttered down, which essentially gutted the whole legislative initiative. Two years on, and the title loan outlets are even more numerous. And Thriving.
Title loans outlets are only allowed in half the nation's state, but their numbers are staggering. Although its commercial relative, payday loans, is coming under increasing scrutiny, the title loan companies seem to be plodding gingerly along.
But let's look at the interest rates charged by these title loan outlets for a moment.
First the consumer must have a clear title to bring in as collateral. Then the customer is assessed at no more than a quarter of the car's value in possible loans.
Then the interest part. That would be about 25% per month....yes you heard right. 25% per month, not per year. And of course, as we have already seen, customers pay it, because they risk losing their car. What's the total you ask? Oh, about 2000% per year.
What is more concerning, most customers take more than one month to repay the loan, and therefore, if a customer for example takes out a 1,000 dollar loan, that means he is due to pay 25% for the first month, and then 25% on the remainder of the loan and the fees for the second month and so on. In fact, the average repayment time is about 5 months.
The costs are staggering. And no one seems to have the fortitude to stop these companies. They fall in the quagmire of short term loans, which are much less regulated than long term loans.
To give an idea of the size of the business, the title loan volume nationwide tops 6 billion. Payday loans top 38 billion annually.
How many people lose their cars by using these outlets? Most estimate go as high as 17%. Companies however, report a much lower percentage, about 8%.
It is indeed a riskless business. For the title loan companies that is. And one in which the profits are in some people's opinion, scandalous.
partial source: NBC /3.6.13
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