Cyrus Dugger

Some Consumers Run Into Big Problems With Auto Title Lending

Here’s a great article from USA Today on predatory lending that mentions Coley Ward, one of our guest contributors. I wish it had also mentioned how mandatory arbitration agreements intersect with this problem, but you can’t have it all.

Some consumers run into big problems with auto title lending

By Sue Kirchhoff, USA TODAY

Strapped for cash, James Haga of Marion, Va., took out a $1,600 loan last year, using his truck as collateral. In August, when he couldn’t keep up with the escalating balance, Haga’s Ford was repossessed.

Total cost for the loan? A $13,000 auto, plus $4,500 in payments.

“I was at home in the shower getting ready to go to work, and I went out to get my truck and it was gone,” says Haga, 44, whose loan carried an effective 300% annual interest rate. Adding to his worries, Haga’s girlfriend, Brandy Smith, 31, is carrying a similar, $700 loan.

Haga is one of thousands of consumers who have turned to auto title lenders for quick cash and ended up with big problems. Under the loans, sometimes called auto equity lines of credit or auto pawns, individuals offer fully owned cars or trucks as backing for loans of several hundred to several thousand dollars. Lenders take the title to the vehicle and, often, a duplicate set of keys.

Title lending is one of the lesser-known, high-cost loans now proliferating across the country. But consumer advocates call it one of the more dangerous.

If borrowers can't pay back the loans, often due in 30 days, they often roll them over, with multiplying fees. If they still fall behind, their cars can be repossessed. That contributes to a downward spiral, with people unable to get to work, a doctor or drive their kids to school.

There are no comprehensive statistics, but the Tennessee Department of Financial Institutions said more than 17,000 autos were seized by title lenders in that state in 2004. In Oregon and Idaho, government data show hundreds of cars repossessed. Rod Aycox, president of LoanMax auto title and its affiliated companies throughout the country, made about half a million loans this year and repossessed cars in 5% of the cases, or 25,000 autos, according to a statement from his firm. The average age of cars offered as collateral was 10 to 12 years.
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For related information and commentary read Congress Has Acknowledged That Mandatory Arbitration Agreements Are Unpatriotic.