Available at: https://www.responsiblelending.org/research-publication/under-radar-evidence-prohibited-vehicle-title-loans-made-23-states
Executive Summary:
Vehicle-title loans are high-cost loans with little or no underwriting that are secured by a borrower’s car title. While the borrower of a vehicle-title loan keeps possession of the car and can continue to drive it if they make payments, the lender can threaten repossession or actually repossess the vehicle with no legal process since they are in possession of the title and, sometimes, the keys. Title lenders charge fees and interest as high as 300% Annual Percentage Rate (APR)1 and put borrowers’ important assets—their cars—at risk of repossession. Broadly, lending can occur in one of two ways: the lender can extend credit under their own name, or the lender can make an arrangement with an out-of-state bank to be the lender of record. In states where vehicle-title prohibitions exist, some high-cost lenders improperly claim the latter arrangement excuses the lender’s evasion of rules and laws made to protect the finances of state residents. High-cost vehicle-title lending is currently prohibited in 33 U.S. states and the District of Columbia.2 Notwithstanding this widespread body of state law, the Federal Deposit Insurance Corporation (FDIC) found in their 2021 National Survey of Unbanked and Underbanked Households that residents of all but three states had used consumer vehicle-title loans in that year.3
Important details about lender practices and impacts are not fully transparent to the public, despite the high costs and stakes involved with these loans.4 To add to the body of information available about vehicle-title lending, CRL commissioned BSP Research to survey 7,115 Americans in July 2024, assembling a sample of 400 respondents who had taken out vehicle-title loans in the past 24 months.5 Respondents described the circumstances, duration, amount, terms, and impacts of their borrowing. CRL identified the following important findings from the survey responses.
Key Findings Include:
Vehicle-title loans are very expensive, often unaffordable, and can lead borrowers into a debt trap.
- Nearly two-thirds of borrowers (64.5%) were unable to make all their loan payments on time and reported paying late at least once.
- 84.5% of respondents reported a title loan being flipped at least once.
- About half of borrowers (49.0%) reported a single title loan being flipped twice or more.
- About half of borrowers (49.0%) reported having taken two or more separate loans in the past two years.
Vehicle-title loans have onerous consequences.
- Among borrowers with at least one late payment, 40.7% reported incurring one or more of the following severe penalties as a result: car repossession, being sued for the debt, or wage garnishment.
- More than one in five (22.9%) of late-paying borrowers reported their car was repossessed due to late payments.
- Among respondents whose car was repossessed, the median loan amount was reported to be between only $1,000 and $2,000, a tenth or less of the median repossessed car value, which was between $20,000 and $30,000.
Vehicle-title loans are being made in states that prohibit vehicle-title loans.
- Borrowers residing in 20 of the states, or the District of Columbia, where vehicle-title lending is prohibited, reported having active vehicle-title loans taken out in person in their home states.
- Borrowers residing in 14 of the states, or the District of Columbia, where vehicle-title lending is prohibited, also reported taking out vehicle-title loans online, which circumvents laws in their home states.
Commentary:
Unsurprisingly, as the Center for Responsible Lending is proudly located in Durham, this study kicks off by showing examples of title loans made by TitleMax to North Carolina residents – loans that likely were illegal and usurious in North Carolina and twenty other states. As these borderline title lenders, which line the borders, are often the last stop for consumers before filing bankruptcy, it is disappointing that Chapter 13 Trustees do not appear to take any systematic approach to objecting to claims filed by TitleMax and others, using their avoidance powers to attack these pernicious actors and complying with their statutory duty to assist the debtor in performance under the plan.
