All you have to do is Google the Internet for Pay Day Loans or Car Title Loans to see how out-of-control and predatory these types of loan companies have become. I would like to know what happened to the state usury laws, which were in place to protect consumers. I would like to know how the credit laws were changed to favor these predatory lending companies, who are now called short term lenders. I would like to know who the state representatives and other state officials are who sponsored the legislation that unleashed these predators onto the Texas low-income consumers!
There are thousands of instances listed on blogs and forums which detail accounts of how these types of loans companies prey upon low-income consumers, often charging 300% or more by maliciously constructing the loans so they fall outside the state's credit law and cannot be regulated!
Title loans first emerged in the early 1990s and opened a new market to individuals with poor credit and have grown increasingly popular according to studies by the Center for Responsible Lending and Consumer Federation of America. They are the cousin of unsecured loans, such as payday loans. Since borrowers use their car titles to secure the loans, there’s risk that the borrower can lose their vehicle by defaulting on their payments due to personal circumstances or high interest rates, which almost always have APR in the triple digits, and what’s called, “Balloon payments,” that some lenders have become infamous for.
Even though states are placing stringent restrictions on things like interest rates that can be charged, regulating the practices of companies offering short term loans, like payday loans or title loans, proves to be a difficult endeavor. The Consumer Financial Protection Bureau and the Federal Trade Commission, both federal regulatory agencies responsible for enforcing federal law with non-banking institutions admit that they do not have the authority to enforce the Military Lending Act, which states that military members and their families can pay an APR no higher than 36%, while banning loans to service members that would be secured through their banking account, vehicle or paycheck.
Some lenders can move around restrictions like those posed under the Military Lending Act by offering open-ended credit loans instead of title loans or payday loans. This allows them to continue charging triple digit APR on their loans.
Some groups, such as the Texas Fair Lending Alliance, present title loans and payday loans as a form of entrapment, where taking out one of these means that borrowers will find themselves cycling further into debt with less chances of getting out of debt when compared to not taking the loan out at all – contending that 75% of payday loans are taken out within 2 weeks of the previous loan in order to fill the gap in finances from when the loan was originally taken out.
In 2001, Texas passed a law capping interest rates on title loans and payday loans. However, lenders are getting around the restrictions by exploiting loopholes allowing them to lend for the same purposes, with high interest rates, disguised as loan brokers or as a Credit Services Organization (CSO).
The ads are on the radio, television, the Internet, even in the mail. They refer to payday loans, cash advance loans, check advance loans, post-dated check loans, or deferred deposit loans. The Federal Trade Commission, the nation’s consumer protection agency, says that regardless of their name, these small, short-term, high-rate loans by check cashers, finance companies and others all come at a very high price.
Here’s how they work: A borrower writes a personal check payable to the lender for the amount the person wants to borrow, plus the fee they must pay for borrowing. The company gives the borrower the amount of the check less the fee, and agrees to hold the check until the loan is due, usually the borrower’s next payday. Or, with the borrower’s permission, the company deposits the amount borrowed — less the fee — into the borrower’s checking account electronically. The loan amount is due to be debited the next payday. The fees on these loans can be a percentage of the face value of the check — or they can be based on increments of money borrowed: say, a fee for every $50 or $100 borrowed. The borrower is charged new fees each time the same loan is extended or “rolled over.”
The federal Truth in Lending Act treats payday loans like other types of credit: the lenders must disclose the cost of the loan. Payday lenders must give you the finance charge (a dollar amount) and the annual percentage rate (APR — the cost of credit on a yearly basis) in writing before you sign for the loan. The APR is based on several things, including the amount you borrow, the interest rate and credit costs you’re being charged, and the length of your loan.
Cash advances are not a new concept in America's brand of capitalism. Many people have seen the commercials with some guy barking out, "Bad credit, no credit, no problem!" Or, "Don't worry about credit, I own the bank!" In addition to high interest, these car title loans usually include a number of fees that add up quickly. Anytime some guy is telling you he owns the bank, run.
Even though these lenders have been around for a while, signing your car over for a high-interest loan has become a serious financial issue.For those of you who are unfamiliar with the concept of car title loans, allow us to explain. At times, the best of us get strapped for cash; we may have no credit or bad credit (just like they say in the commercials), which keeps us from getting small loans from a bank or some other more traditional means.
A title loan offers you cash from the lender, in return you sign over the title of your paid-for car to secure the loan. Typically, these loans are due back in full 30 days later. There's no credit check and only minimal income verification. It sounds pretty straightforward, but borrowing from these places can lead to a repossession of your car and a whole lot of financial trouble.
Car title loans have been lumped into the "predatory lending" category by many consumers. Non-profit organizations such as Consumer Federation of America (CFA) and the Center for Responsible Lending have issued detailed reports outlining some of the title loan issues that the public should be leery about.
One of the biggest issues with these loans is interest rates. Many people dislike credit card interest rates, which average between the mid to high teens for most Americans. Car title loan interest rates make complaining about credit rates seem ludicrous.
Car title lenders are in a different category than credit card companies or banks and work around usury laws. Thus, title loan lenders are able to charge triple digit annual percentage rates (APRs). Yes, triple digits. It's not an exaggeration to see 250% APR and higher on these car tile loans and only a handful of states have passed strict laws that prohibit exorbitant percentage rates.
Alabama, Arizona, Delaware, Georgia, Idaho,Illinois, Mississippi, Missouri, Nevada, New Hampshire, New Mexico, South Dakota, Tennessee, Texas, Utah, Virginia, and Wisconsin. Of these states, Delaware, Idaho, Illinois, Missouri, Nevada, New Mexico, South Dakota, Utah, and Wisconsin set no cap on the cost of a car-title loan.
Car-title lenders operate in four additional states by structuring loans to fall outside of state credit law definitions. For example, title loans are available in California and South Carolina for larger amounts to avoid the small loan rate cap. Kansas title loans are structured as open-end credit, since Kansas has no rate cap for open-end credit from licensed lenders. In Louisiana, car-title lenders make loans for more than $350 and terms exceeding two months to avoid state law restrictions.
The remaining states authorize car-title loans at lower rates and likely do not have car-title lenders operating in the state, prohibit by statute or do not permit car-title lending under existing credit laws.
It is incredible that this is not just a problem in this country! Here is a news story from Bangkok, Thailand discussing how lack of access to conventional loans has pushed many Thais to seek money from exploitative loan sharks!
From the Bangkok Coconut News