Car Lenders Prey on Working Class, Poor

Predatory lending practices have been making headlines lately as a result of the home-mortgage crisis. One overlooked lending practice, however, has been that of car title lenders, who grant loans after placing a lien on the title of the borrower’s car and getting a copy of the keys in case repossession becomes necessary.

Much like payday lenders, these companies make money off people in tough financial situations, with one important difference: A payday loan is based on the promise of a personal check, whereas with a car-based loan, the collateral is sometimes the family’s only vehicle and most important possession.

Not only do individuals and families become ensnared in long-term debt with exorbitant interest rates (sometimes as high as 300%), they stand to lose their primary means of getting to work, school and the grocery store.

Legislators have tried desperately to reign in the irresponsible practices of car title lenders, but face numerous challenges as they also try to deal with the more prevalent predatory behavior of payday lenders. It doesn’t help that lenders of all stripes funnel hundreds of thousands of dollars into legislative campaigns to protect their interests.

According to the St. Petersburg Times in Tampa Bay, Fla., 16 states battled with car title lenders last year, and only six managed to pass any type of regulation: Iowa, Mississippi, Montana, Nevada, Oregon and Utah. So far this year, eight more states have introduced legislation aimed at lenders.

The primary goal is to cap interest rates at somewhere around 36% to keep lenders from smothering working people in debt they very quickly cannot afford to pay down.

Let us know what you think about the practice of car title lending, and be sure to find out what the laws are in your state before ever borrowing against your car.

States Take on ‘Car Title Loans’ (St. Petersburg Times)