Monday, July 2, 2012

Grand Theft Auto Loans - Car Title Loans That Never Die! Another Consumer Debt Racket Targeting The Unwitting Borrower

The following excerpt is the abstract of a recent article on the auto title loan racket co-authored by University of New Mexico Law School Professor Nathalie Martin and recent UNM Law School graduate Ozymandias Adams:

  • This Article analyzes empirical data on one of America’s fastest growing credit products, the title loan. A title loan is a high-interest, deeply over-secured, consumer loan, in which the consumer uses an unencumbered auto-mobile as collateral for a non-purchase money loan.

  • Title loans are made based solely on equity in a car. If a customer has insufficient income to pay the payments under the loan, typically interest-only payments at 300% per annum or more, the lender repossesses the vehicle, many of which have GPS trackers installed for this purpose.

  • Not surprisingly, the repossession rates for title loans are higher than regular auto repossession rates, as well as home foreclosure rates. Prior to repossession, lenders recover their principal many times over.

  • For example, one customer paid over $10,000 on her $4000 loan. Another paid over $11,000 on a loan of $1500. Despite these realities, title loans have garnered little interest in the scholarly world.

  • While legislatures around the nation struggle with how to regulate home loans, credit cards, and other middle class products, title loans go largely unnoticed and unregulated. This Article reports on data about who uses these loans and how often, as well as on repossession rates. It concludes that, given the protections we have provided to middle class consumer credit users, we also should regulate the consumer credit products used primarily by the lower and working classes.
For the abstract and the link to the full article, see Grand Theft Auto Loans: Repossession and Demographic Realities in Title Lending.
In a related blog post, see Is it Literally Impossible to Pay Off a Title Loan? (posted on Credit Slips by Professor Martin):
  • I recently published a law review article entitled Grand Theft Auto Loans with Ozy Adams. It discusses title lending based upon data collected by the State of New Mexico. This article cover a tremendous amount of ground, but as these things tend to go, I have now heard of two critical topics we should have discussed but didn't.
  • Here are two important things we missed. First, it seems that the process of repossessing and then having a customer redeem the vehicle is extremely profitable for the lender and very expensive for the client. Having asked around bit this past week, I am hearing regular stories about this from legal aid offices around the state. I don’t think I quite realized what a profit center repossession followed by redemption really was. This also means that in states that report only vehicles ultimately lost to repossession, this added expense/loss is never accounted for and is thus not in the reported repossession numbers. This deserves further study.

  • Second, above I say the loans can only be paid off in one lump sum. But I kid you not, folks, that is so wrong! Reality check: You can’t pay them off at all! I do not mean that the customer cannot come up with the money.

  • What I mean is that the lenders find ways to keep you in the loans even if you show up with the total amount of funds owed. They will not take checks from banks. Even if you seemingly pay it off in full, they come up with charges they missed and keep asking for more. They refuse to release titles.

  • They try to confuse customers, do not listen to customers, by hook or by crook, they simply will not take the principal to pay off the loan. One friend of mine who runs a CDC has documented these practices over and over again. He has found that unless they feel the law might get involved, the loans never die.

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