Cash title loans were so notorious in 2005 that the Center for Responsible Lending and the Consumer Federation of America published a report entitled “Car Title Lending: Driving Borrowers to Financial Ruin” in April, followed by a survey by the Consumer Federation of America entitled “Driven Into Debt: CFA Car Title Loan Store and Online Survey” in November that confirmed the earlier report. The survey confirmed the report that cash title loans were being used by crooked lenders to trap borrowers into an impossible debt and eventually taking their car.
Knowing how important a car is to an American household, shylocks take advantage of a borrower’s desperation by offering them only 50% value for the car and sometimes, a 650% interest rate payable within three months. Preying predominantly on low income groups who could not afford to pay more than $300 a month, these shylocks offer cash title loans of more than $600 to take advantage of higher interest rates and trap the borrower in an unending cycle of payment and loan restructuring for many years.
As a result of the report, a wave of protests and petitions led to a Senate hearing where a witness appalled state legislators by testifying about her experience as a borrower. The witness testified at the Senate hearing the she had paid over 200% of her initial principal loan in interests over the past 2 years, but still had to pay off the original loan or risk losing her car. Explaining that her disability check only provided enough to pay for the interest on the loan, she testified that she still owed the amount she borrowed over two years ago. When she was asked what she used the money for, she said that she needed the money to pay off the last installment on her car’s tag price and insurance.
As pressure increased against title lenders, they too began to fight back by pouring money into legislators’ coffers, resulting in a full blown all out war between title lenders and consumer protection agencies. However, as pressure continued to build, legislators of several states began to enact laws that put a cap on interest rates in 2008. As of April, 2009 more than half of the states have taken steps to regulate cash title loans in their respective areas.
In March, 2009 more than 100 diverse National and State groups endorsed Senator Richard Durbin’s Senate Bill 500 entitled “Protecting Consumers from Unreasonable Credit Rates Act”, which put a nationwide cap on cash title loans. According to the bill, the cap for title loan interest rates anywhere in the country should not exceed 36%. This effectively controls online title lenders who rely on specific state laws that allow them to impose higher rates.
Ironically, even while states impose lower caps on their respective areas, title lenders are finding out that these caps offer sustainable interest rates that allow for healthy business growth. And instead of having an adverse effect, sanctions imposed by state legislators actually served to legitimize the industry and drove more borrowers into borrowing money.
If you are interested in a cash title loan now, you can now be sure of some measure of protection from the state, making cash title loans currently the best alternative for an emergency source of funds.