For some consumers, the prospect of getting a short-term, small loan by putting up the title of their vehicle as collateral can be an attractive prospect. They might have poor credit or a low income or other circumstances that make borrowing from a reputable lender difficult.
So they go online and find an abundance of auto title lenders ready to give them cash in just a few minutes. But a report released earlier this week by the federal Consumer Financial Protection Bureau says that many of the borrowers wind up in a cycle of debt, often seeing their vehicle repossessed.
As we have mentioned before in this space, because of their exorbitant interest rates of 300 percent and up, usurious auto title loans are illegal in Pennsylvania. Unfortunately, lenders can sometimes skirt the law by operating out of Delaware and ignoring requirements that they be licensed in Pennsylvania.
The Consumer Financial Protection Bureau's report shows that 1 in 5 auto title loans result in vehicle repossession. About half of the borrowers wind up having to take out 4 or more loans to repay the initial auto title loan.
"Most borrowers wind up mired in debt," the bureau's director said. For many such consumers, having their vehicle taken away creates even more financial problems when they or other household members can't get to work.
The auto title loan business began to take off after states cracked down on the predatory lending permeating the payday loan business. Two million people per year get auto title loans per year, while 5 million get payday loans.
If you have been lured into an auto title loan and now face threats of repossession or lawsuits, you can speak with attorneys experienced in fighting back against predatory lenders. Learn about your legal options and possible recovery.