By Charlene Crowell
From Christmas carols to decorations that celebrate the season, the holidays mark the time of year when families and loved ones anticipate joyous celebrations and gift-giving. It’s a season when excesses can easily go beyond over-eating to over-spending, bringing debts that can last well into the New Year.
The holidays are also a time when predatory lenders actively use tempting advertisements of extra cash to seek potential victims. If your holiday list calls for more money than available, don’t make the mistake of falling into the trap that may take most of next year to escape.
Car title lenders can put not only your household budget at risk, but your car as well. With promises such as a 50 percent interest off of the first month, or $25 cash payment for referring new customers, these financial predators will take a title to a borrower’s vehicle in exchange for several hundred or even a few thousand dollars.
Like payday loans, these enticements are designed to trap consumers into predatory loans that are certified debt traps that few consumers can fully repay in just a single payment. The typical car title loan carries a 300 percent annual percentage rate. While borrowers are only loaned a fraction of their vehicle’s value, if vehicles are repossessed, car-title lenders have the right to sell the vehicle at fair market prices, pocketing the profit from its sale – despite borrowers still being stuck with paying debt.
According to research by the Center for Responsible Lending (CRL), each year one particular predatory loan product drains $4.3 billion in fees on loans valued at $1.9 billion. Nationwide, car title lenders operate in 21 states through more than 8,100 retail outlets. States with annual loan volumes surpassing $100 million per year include: Alabama, Arizona, Tennessee, Texas and Virginia.
The road of predatory car title loans leads most often to one of two dead-ends: refinancing the loans in exchange for paying another hefty fee or losing the car to repossession. The typical car title borrower refinances their original loan eight times. As a result, CRL research finds that the typical borrow pays twice as much in interest and fees ($2,349) as the amount of credit extended ($1,042).
Nor will repossession be the end of fated consumers’ financial obligations. The loan payments and all applicable fees must still be repaid despite the loss of the vehicle. Adding to this misery, repossessions usually lead to a new series of increasingly difficult lifestyle adjustments: reliably arriving at work on time, managing personal business or even accessing medical care.
The Federal Deposit Insurance Corporation (FDIC) found that the typical car-title borrower earns $25,000 or less and often comes from unbanked household, those lacking a relationship with mainstream financial institutions. For communities of color, one in five Black and Latino households is unbanked.
Military members are similarly targeted by these financial predators. Earlier this year, both the U.S. Department of Defense and the Consumer Financial Protection Bureau publicly addressed how consumer loan terms circumvented the Military Lending Act (MLA) intended to remove financial stress from active duty members. Since MLA’s enactment, some lenders have extended loan terms to more than the 180- day period cited in the law. Some extensions are as little as one day or 181 days.
When financial challenges already haunt most low-to-moderate-income consumers, those considering these loans should ask themselves: “Is this the way I want to begin my New Year?”
“Car title loans, like payday loans, are designed to create a long-term cycle of debt,” said Diane Standaert, CRL’s director of state policy. “Whether big or small, car title loans lead borrowers down a road of financial disaster. State and federal lawmakers have the ability to enforce against the car-title debt trap and should do so.”
This year, keep your holiday safe from predatory lending. There’s nothing ‘merry’ about debt traps.
Charlene Crowell is a Communications manager with the Center for Responsible Lending. She can be reached at Charlene.email@example.com.