Exercise caution before borrowing money through an automobile title loan.
These loans require you to put up as collateral the ownership of your car. If you miss payments or default on the auto title loan, the lender can take your vehicle.
Tips for consumers considering an auto title loan:
- Borrow only as much money as you can afford to fully repay when the payment is due, which may be less than the amount you may be eligible to receive.
- You have the right to full disclosure in your contract of all interest charges, the annual percentage rate (APR) of the loan and all fees. The final contract must be in the language in which you negotiated it.
- Before you take out a loan, read the contract thoroughly and be sure you understand all the terms. Once the loan agreement is signed, you are legally responsible to fulfill the obligations in the contract.
- Be aware some lenders use remote engine shutdown devices that allow them to turn off your car if you don’t make payments. Some of these devices have GPS tracking capability.
- Although these loans are quick and easy to obtain, you pay higher prices for the convenience.
- ABOVE ALL, CONSIDER AVAILABLE ALTERNATIVES. Examples include asking your employer for an advance on your next paycheck; finding out if your bank or credit union provides short-term credit products; asking creditors for more time to pay your bills; asking for a loan from a relative or friend.
Auto title loans typically are advertised as short-term loans for people who need money quickly but may not have access to more conventional loans, possibly due to marginal credit scores. Few assets are more important to Californians’ financial security than their cars.
Borrowers who use their auto titles as loan collateral are risking that asset. That’s why we strongly urge consumers to exercise great care before taking out an auto title loan, and to try other options first. The amount of these loans typically is less than what the car is worth.
WARNING: FOR ALMOST ALL AUTO TITLE LOANS, THE INTEREST RATE LENDERS CAN CHARGE IS UNLIMITED. THIS SHOULD BE A LOAN PRODUCT OF LAST RESORT.
Current state law does not limit interest rates for consumer loans of $2,500 or more. In 2013,virtually 100 percent (99.99 %) of auto title loans equaled or exceeded that threshold. The annualized interest rate on the vast majority of these loans ranged from 70% to 100% and higher.
Even if you don’t have the protection of interest rate limits, the law requires lenders to deal with you fairly and honestly. That means they must fully inform you about the interest you will pay.
Carefully review the terms of the loan BEFORE you sign a contract!
Always check with the Department of Business Oversight on a company’s license BEFORE entering into an agreement for an auto title loan.
Here’s a link to the original Advisory.
Federal Deposit Insurance Corporation’s Involvement in “Operation Choke Point” Staff Report, 113th Congress, December 8, 2014
U.S. House of Representatives, Committee on Oversight and Government Reform, Darrell Issa (CA-49), Chairman
“Documents produced to the Committee reveal that senior policymakers in FDIC headquarters oppose payday lending on personal grounds, and attempted to use FDIC’s supervisory authority to prohibit the practice. In emails from February 2013, the Director of FDIC’s Atlanta Region noted he was “pleased we are getting banks out of ach (payday, bad practices, etc). Another bank is gripping [sic] . . . but we are doing good things for them!” Mark Pearce, the Director of FDIC’s Division of Depositor and Consumer Protection, expressed agreement with the sentiment, and noted concern over “failure to be proactive” on the issue.”
- FDIC’s explicitly intended its list of “high-risk merchants” to influence banks’ business decisions. FDIC policymakers debated ways to ensure that bank officials saw the list and “get the message.”
- For example, the committee obtained a jarring account of a meeting between a senior FDIC regulator and a banker contemplating serving a payday lending client. The official told the banker, “I don’t like this product, and I don’t believe it has any place in our financial system. Your decision to move forward will result in an immediate unplanned audit of your entire bank.”
- “… insisted that Chairman Gruenberg’s letters to Congress and talking points always mention pornography when discussing payday lending.”
- Documents produced to the Committee reveal that senior FDIC policymakers oppose payday lending on personal grounds, and attempted to use FDIC’s supervisory authority to prohibit the practice. Personal animus towards payday lending is apparent throughout the documents produced to the Committee. Emails reveal that FDIC’s senior-most bank examiners “literally cannot stand payday,” and effectively ordered banks to terminate all relationships with the industry.
- FDIC Field-level Examiners Ordered Banks to Cease Relationships With Payday Lenders.
- “In a particularly egregious example, a senior official in the Division of Depositor and Consumer Protection insisted that FDIC Chairman Martin Gruenberg’s letters to Congress and talking points always mention pornography when discussing payday lenders and other industries, in an effort to convey a “good picture regarding the unsavory nature of the businesses at issue.”
Additional documents confirm Director Pearce’s opposition to payday lending, and determination to deploy FDIC’s supervisory power to prohibit or discourage the practice. In an email dated February 22, 2013, a Senior Counsel in the Legal Division’s Consumer Enforcement Unit informed an Assistant General Counsel there is top-level interest in stopping payday lending. The email describes how Director Pearce is interested “in trying to find a way to stop our banks from facilitating payday lending.” The Senior Counsel even describes concern with this approach, noting that other officials cautioned that “…unless we can show fraud or other misconduct by the payday lenders, we will not be able to hold the bank responsible.
On March 8, 2013, the Senior Counsel wrote two FDIC attorneys within the Legal Division and asked about ways the FDIC could “get at payday lending.” The email explains that Consumer Enforcement Unit received a request from Division of Consumer and Depositor Protection to look into “what avenues are available to the FDIC to take action against banks that facilitate payday lending”:
Personal animus towards payday lending is apparent throughout documents produced to the Committee. In one egregious example, the DCP’s Deputy Director for Policy & Research insisted that Chairman Gruenberg’s letters to Congress and talking points always mention pornography when discussing payday lending, in an effort to convey a “good picture regarding the unsavory nature of the businesses at issue.” The email, sent by a Counsel in the Legal Division, outlines a meeting that occurred with the Deputy Director:
“It appears senior officials recognized the inherent impropriety of FDIC’s policy. In an email to DCP Director Mark Pearce, the FDIC spokesman described the basis for congressional oversight of the issue. The spokesman noted that “some of the pushback from the Hill is that it is not up to the FDIC decide what is moral and immoral, but rather what type of lending is legal”:
“The spokesman continues by stating that the FDIC has denied that they are forcing banks to end relationships with payday lenders. Documents obtained by the Committee prove this statement is false. As late as March 2013, FDIC officials were “looking into avenues by which the FDIC can potentially prevent our banks from facilitating payday lending.” Ultimately, senior officials at FDIC headquarters were successful in choking-out payday lenders’ access to the banking system. As of June 2014, over 80 banks have terminated business relationships with payday lenders as a result of FDIC targeting.”
“FDIC Field-level Examiners Ordered Banks to Cease Relationships With Payday Lenders.”
“Documents produced to the Committee confirm that senior officials are aware that FDIC examiners are injecting personal value judgments into the examination process. In an email to DCP Director Mark Pearce concerning agency policy with respect to payday lending, a DCP Deputy Director observes, “I may have to confront the issue of overzealous examiners (immoral issue). I would do so by making clear that it is not fdic [sic] policy to pass moral judgment on specific products.”
“Documents produced to the Committee justify these concerns: internal emails reveal that FDIC examiners were actively engaging in measures to prohibit or discourage relationships with payday lenders. In response to request for guidance on payday lending from the president of an unnamed bank, an FDIC Field Supervisor in the Atlanta Region wrote, “Even under the best circumstances, if this venture is undertaken with the proper controls and strategies to try to mitigate risks, since your institution will be linked to an organization providing payday services, your reputation could suffer.”
“In a far more glaring abuse of the examination process, a senior FDIC official effectively ordered a bank to terminate all relationships with payday lenders. On February 15, 2013, the Director of the Chicago Region wrote to a bank’s Board of Directors and informed them the FDIC has found “that activities related to payday lending are unacceptable for an insured depository institution.”
There is evidence examiners’ campaign against payday lending even extended to threats. At a hearing before the Subcommittee on Regulatory Reform, Commercial and Antitrust Law of the House Judiciary Committee, Chairman Bob Goodlatte revealed that senior FDIC regulators went as far as threatening a banker with an immediate audit unless the bank severed all relationships with payday lenders. Chairman Goodlatte explained in his opening statement:
For example, the committee obtained a jarring account of a meeting between a senior FDIC regulator and a banker contemplating serving a payday lending client. The official told the banker, “I don’t like this product, and I don’t believe it has any place in our financial system. Your decision to move forward will result in an immediate unplanned audit of your entire bank.”
The practical impact of Operation Choke Point is incontrovertible: legal and legitimate businesses are being choked off from the financial system. Confidential briefing documents produced to the Committee reveal that senior DOJ officials informed the Attorney General himself that, as a consequence of Operation Choke Point, banks are “exiting” lines of business deemed “high-risk” by federal regulators.
The experience of firearms and ammunitions dealers – one of the most heavily regulated businesses in the United States – is a testament to the destructive and unacceptable impact of Operation Choke Point. TomKat Ammunition, a small business selling ammunition in the state of Maryland, holds a Type 06 Federal Firearms License from the Bureau of Alcohol, Tobacco, Firearms and Explosives, two Maryland State Licenses for Manufacturing and Dealing in Explosives, and a local business license.80 Notwithstanding the extraordinary complexity of this regulatory regime, over the past year TomKat Ammunition has been systemically denied access to the financial system. One bank refused to provide payment processing services due to their “industry.” A large online payment processor informed TomKat that they “could not offer that service due to [their] line of work.” Another credit card processor stated it would no longer allow businesses to process gun or ammunition purchases.
Media accounts record similar experiences. In South Carolina, Inman Gun and Pawn’s longstanding checking accounts were terminated after the company was deemed a “prohibited business type.”In Wisconsin, Hawkins Guns LLC opened an account at a local credit union. The credit union terminated the account the very next day, informing the company that “they do not service companies that deal in guns.” In all three of these cases, the financial institutions and payment processors made no reference to the merchants’ creditworthiness, individual risk profile, or due diligence findings. The sole basis for the terminations is their participation in an industry deemed “high risk” by federal regulators.
Recognizing the irreparable harm to legal and legitimate industries, even fellow regulators have taken the extraordinary step of criticizing the impacts of Operation Choke Point. In a major speech at a joint conference of the American Bar Association and the American Bankers Association on November 10, 2014, David Cohen, the Under Secretary for Terrorism and Financial Intelligence at the Treasury Department, warned of the dangers of “de-risking.” Mr. Cohen explained that de-risking occurs when a financial institution terminates or restricts business relationships simply to avoid perceived regulatory risk, rather than in response to an assessment of the actual risk of illicit activity.84 The Under Secretary went as far as to characterize de-risking as “the antithesis of an appropriate risk-based approach,” warning that the practice can “undermine financial inclusion, financial transparency and financial activity, with associated political, regulatory, economic and social consequences.”
At a minimum, Operation Choke Point is little more than government-mandated de-risking. FDIC, in cooperation with the Justice Department, made sure banks understood – or in their own language, “got the message” – that maintaining relationships with certain disfavored business lines would incur enormous regulatory risk.86 The effect of this policy has been to deny countless legal and legitimate merchants access to the financial system and deprive them of their very ability to exist. Accordingly, Operation Choke Point violates the most fundamental principles of the rule of law and accountable, transparent government.”
Read the entire report, issued by Federal Deposit Insurance Corporation’s Involvement in “Operation Choke Point” here.
“Dear Trihouse Payday Loan Company,
Regretfully, we can no longer service your payday loan company. Although you’ve been a great customer for years and we’ve made a ton of money off of you, you have 30 days to find a new bank. We have no clues, ideas or suggestions for you. You’ve done nothing wrong. We just don’t like your industry.
Sincerely, Wells Fargo Bank.”
“Bank discontinuance” has been an issue for payday lenders, check cashers, and money service businesses for years. The first FISCA conference I attended in 1998 (actually it was then called The National Association of Check Cashers) had a workshop focused on “Bank Discontinuance.”
Funny thing is, Wells Fargo, in addition to CitiBank, Fifth Third and others, provide financing for the “big boys” in the small dollar lending industry! Adam Rust, an opponent of the payday loan industry, has worked hard at documenting this. From Adam:
“Commercial banks, including Wells Fargo in San Francisco and U.S. Bank, are a significant source of capital for the country’s $48 billion payday loan industry, extending more than $1 billion to companies such as CashNetUSA parent Cash America, Dollar Financial and First Cash Financial.”
I recommend you signup for BankTalk.org. [No affiliation other than that he’s worth following.]
And, get this: Fifth Third bank has re-entered the payday loan industry as a LENDER while shutting down their competition – those of us in the PDL space. Revisions of Fifth Third Bank’s payday loan product called Early Access service include a reduction of the transaction fee from 10% to 3% of the amount of each advance, increasing the repayment deadline for each advance from 35 days to 45 days, and a reduction in the number of months a customer may advance the maximum credit limit from six to three months. Worse, this Fifth Third program gives no attention to a borrower’s ability to pay; an issue we are continually attacked for. The FCC and the OCC have made specific reference to this for pressuring Fifth Third Bank, U.S. Bank, Wells Fargo, Regions and others to shut down these payday loan styled products.
Banks are using “Operation Choke Point” , and every other excuse possible, to shut down the small fish in the payday loan industry. Again, not only are they offering competing products, but they provide capital to the incumbents.
Here is the official announcement from Fifth Third:
On January 17, 2014, Fifth Third Bank announced that it will no longer offer new customers its Early Access deposit advance service after January 31, 2014.
Effective January 1, 2015, Fifth Third Bank is making changes to its Early Access deposit advance service.
The following is a summary of the changes:
- Lower Cost: Fifth Third is reducing the cost of the Early Access transaction fee from 10% of the amount of each advance to 3% of the amount of each advance. For example, if you advance $100 on or after January 1, 2015, you will be charged $3 instead of $10 for that advance. This will go into effect for each advance made after 9 p.m. ET, December 31, 2014.
- More Time to Repay: We are increasing the repayment deadline for each advance from 35 days to 45 days. Therefore, any advance or portion of any advance that is still outstanding as of January 1, 2015, must be paid in full by the 45th day from the date the advance was drawn, or the amount will be automatically debited from your associated checking account. (Please remember that Fifth Third will automatically repay your advance from your next direct deposit of $100 or greater until the advance is paid in full.)
- Reduced Maximum Advance Period: We are decreasing the number of months that you may advance your maximum credit limits from six months to three months. If for 3 consecutive months you have advanced the maximum amount of your credit limit, you will be ineligible for an advance for 30 days following the 3rd month. For example, if you advanced your maximum credit limit in October, November, and December of 2014, as of January 1, 2015, you will be ineligible for an advance for 30 days.
- “”Fifth Third continues to proactively engage with key stakeholders to review new options for what the bank considers a clear and continued need for small-dollar, short-term credit solutions,” it said in a news release. “A primary objective is to serve customers within the traditional banking system, rather than having them access less-regulated providers outside the banking system.”
The gall!! The audacity!! The boldness!!! Astounding? No! Remember, I’m talking about A BANK. And let’s not forget these banks get money from the FED at discount rates that would cause a loan shark to blush, then loan it to consumer facing lenders such as World Acceptance, CSH, DLLR, Enova, QC Holdings at prime + 500 basis points.
Bottom line? If you have a bank, get a backup. If you lost your bank, SORRY! If you’re a small bank with aspirations to become much larger and collaborate with successful, licensed lenders with serious AML programs in place, call Jer at 702-208-6736 or shoot an introductory email to Jer@TrihouseConsulting.com
PAYDAY LENDING MARKET INVESTIGATION
Summary of a response hearing with Think Finance (UK) Limited held in July 2014
[I’ve always counseled that to understand what’s coming in the U.S. payday loan space, look to the U.K. for insight. A few highlights from The CMA (Competition & Markets Authority) in the United Kingdom does just that.]
“* Shortly after Sunny launched [Think Finance U.K formed “Sunny”] it experienced a large spike in applications of low quality. Think Finance believe that this was driven by customers, who were already active in the market becoming aware of a new lender and applying after they had been rejected by other lenders or as a potential new source of funding. Sunny were currently issuing around [redacted] loans per month and at present the balance of new to repeat borrowers was skewed towards new borrowers as they sought to build up their customer base. Sunny was generating revenue of around £[redacted].”
[Much like the “new guy in town.” A new payday lender opens up for biz and all the regulars apply. They get approved and send their buddies over to the new lender who doesn’t have a clue.]
“* In the US, Think Finance had significant flexibility in its risk based pricing which allowed customers to be offered rates from between 3% and 30% per month. Think Finance thought the FCA’s [UK regulator] proposed price cap would impact its ability to operate this model in the UK; by charging higher rates for new customers whilst it gathered a better understanding of the credit risk of those 3 customers (and those that defaulted) it was able to charge lower risk customers a lower rate. By restricting the ability to charge higher rates for higher risk customers, Think Finance could no longer afford to offer the steep price progression it currently offers.
“* Think Finance said that speed of payment by a lender was more important to many customers than the offer of no fees, flexibility of duration and repayment of a loan and lower interest rates.”
[SO TRUE! Those of us who have worked behind the counter and talked with borrowers on the phone know this all too well.]
“* Think Finance thought that there might be some validation of the market as a result of regulatory interventions that might lead to some growth in the market however because of barriers to expansion it was likely that this growth would be concentrated amongst the three largest lenders.
[We’re witnessing this in the US.]
“* Think Finance supported the cap on default charges as a good thing for consumers. It noted that at present some lenders were levying late/default fees in the order of £140.
[Roughly $220 US.]
“* New entrants to the market faced the constraint of existing large lenders spending large amounts of money on advertising and brand awareness that new entrants could not match. Achieving any significant form of brand awareness was a long process and very costly, thereby raising the cost to the new entrant and limiting price innovation.
[The payday loan industry, including lenders, associations, lobbyists… is dominated by the incumbents. With a few geo exceptions, consolidation is the order of the day. The exceptions are Michael Brown and his team at TOFSC and Max Wood with Borrow Smart
[Think Finance includes RISE, Sunny, and Elastic and Elevate.]
Send an email to Jer@PaydayManual.com for the entire CMA Summary with highlights.