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article imageCA State Commissioner warns of danger in Auto Title Loans Special

By Jonathan Farrell     Dec 22, 2014 in Business
Sacramento - With the holiday season the need for extra money can easily push people to dip into savings, use credit cards and seek a cash advance. Some might even consider getting a quick loan using their car.
On Dec. 12, the Commissioner of the California Department of Business Oversight contacted the press to alert consumers about the dangers of taking on small loans using an automobile as collateral.
“It’s understandable that vulnerable consumers in a tight spot would turn to any lending source that offers help,” said DBO Commissioner Jan Lynn Owen. “But auto title loans should be a last resort, she said. "They put consumers at risk of losing their cars, and the law does not limit the interest rate lenders can charge for virtually all loans of this type. We urge consumers to pursue other options before taking out an auto title loan.”
In some instances interest rates on these types of loans can be as high as 100 percent. While these types of loans operate under a different set of rules, "these auto title loans are very similar to pay-day loans," said media rep Tom Dresslar, speaking on behalf of DBO. He took a few moments to provide some details to this reporter.
"A car is perhaps the most important and basic asset that people have. A car is for many people their independence, he said. For working people it is the vital tool that helps them earn their livelihood and stay employed."
Yet Dressler pointed out that there are underhanded and unethical lenders out there who lure the most vulnerable of the population into these types of loans. California State law does not limit the amount of interest rate on consumer loans of $2,500 or more. "Almost 100 percent of all auto title loans fell into that category of extremely high interest rates, starting at 70 percent to 100 percent and even higher."
Auto title loans and the problems they cause for consumers is not new. "We have received complaints about this regularly and we have been very pro-active in preventing this type of lending from proliferating," he said.
Back in 2007, CNN reported that typically these kind of loans require full pay-back within 30 days. And, there are added fees included, which make paying back the loan more strenuous for the consumer. 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 aware and very cautious about.
"This is a particularly risky form of credit," said Paul Leonard, speaking on behalf of the non-profit group Center for Responsible Lending. "We here at CRL have been working to change the law regarding interest rates." He pointed out that auto title loans have been around even before 2007 when the CNN.com article appeared.
Leonard confirmed that in some cases the lender can in effect 'turn-off' the car thru GPS and other electronic means, if the borrower misses a payment. "Folks of modest income often find themselves desperate to find a quick source of cash, through a cash-advance type of loan."
He reiterated most of the information that Dressler and The California Dept. of Business Oversight had said. "In most states auto title loans are like payday loans in that they are short-term and are a balloon payment. But the penalties of triple digit interest are extreme." The other type of auto-title loan is made into a larger loan, longer terms and divided into installments. In this instance the borrower is enticed into refinancing and gets entrapped into another loan. Regardless of either type of auto-title loan, Leonard emphasized "the borrower's car is on the line and from our research we see that the lenders have a high repossession rate." This said Leonard is "very disturbing."
The duress and emotional pressure to pay up is enormous upon a borrower.
"A car for most people is their legs and access to a paycheck," he said. He noted that "in some instances a car is a person's home." Lenders like pay day and auto-title are no doubt predatory. They seek to attract the most vulnerable of the population. "Their ads of 'no perfect credit' make it alluring to those outside of the financial mainstream or the 'underbanked' as they say."
Leonard applauded the DBO and considers the consumer alert from Commissioner Owen very timely and extremely important.
The number of auto-title loans jumped 140 percent in the last three years  notes The California Dept...
The number of auto-title loans jumped 140 percent in the last three years, notes The California Dept. of Business Oversight. The number went from 38,148 to 91,505 between 2011 and 2013.
The business and real estate section of The Sacramento Bee reported that, the number of auto-title loans jumped 140 percent in the last three years. The number went from 38,148 to 91,505 between 2011 and 2013. This info was provided to The Bee from the DBO. At the same time, the amount of principal on those loans grew 150 percent, from $133.9 million in 2011 to $334.8 million in 2013.
Dressler and The Department of Business Oversight hope the message will reach consumers at a very busy and often stressful time of year. Which the DBO wants very much to help consumers avoid a financial pit fall that could have a lasting negative impact.
For more information about the dangers of Auto Title Loans visit The California Dept. of Business oversight web site.
More about Jan Lynn Owen, California, Sacramento, Auto Title Loans, California Dept of Business Oversight
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