Single-payment title loans are gateway to trouble, study finds
CFPB says borrowers sink worse into debt
Borrowers who take out single-payment loans secured by the titles on their autos often end up mired in debt, according to a new federal analysis scheduled for release Wednesday.
Designed as a way for strapped borrowers to survive a cash crunch between paychecks, the loans typically carry interest rates of 300%. However, the Consumer Financial Protection Bureau analysis found the loans often come with cost-lier-than-expected outcomes:
u One in five borrowers who take out a single-payment title loan on their car or truck end up having their vehicle seized by the lender for non-payment.
u Although the loans are marketed as single-payment, more than four out of five borrowers renew their debt, incurring higher fees and interest costs, because they can’t meet the initial deadline. u Borrowers stuck in debt for seven months or more account for two thirds of the single-payment auto title loan business.
“When borrowers lose their personal vehicles, they also lose mobility,” CFPB Director Richard Cordray said. “For those who have to walk away from a loan without their car or truck, the collateral damage can be severe if they experience serious challenges getting to their job or even to the doctor’s office.”
The federal regulator is considering new regulations for auto title loans and other financial products, including payday loans, which are also used by borrowers hit with a financial squeeze between salary checks.
“The customers who use our product are overwhelmingly satisfied,” Advance America spokesman Jamie Fulmer said of his consumer lending company’s auto title loans. The loans account for approximately 10% of revenues at the Spartanburg, S.C.-based business, he said. Twenty states allow single-payment auto title loans, and five other states permit only auto title installment loans, the CFPB analysis found.
An estimated 1.1 million U.S. households used a single-payment auto title loan during 2013, according to a FDIC report. A separate 2015 analysis by The Pew Charitable Trusts estimated that more than 2 million people use high-interest auto title loans annually.