Title Loans Are Loan-Sharking By Another Name
Repossessions continue to increase as California consumers struggle to get back on their feet. While the recession that began half a decade ago stubbornly persists and the federal government sends its workers on unpaid furlough, the financial marketplace continues to be a sea of sharks. Predatory lending practices, coupled with aggressive internet advertising efforts, lure people needing short-term credit into ill-advised loans.
The worst examples of such loans operate to strip consumers of the equity in their last remaining asset - the car they need to get themselves to work, their children to school, and their aging parents to the doctor. This predatory financial product is commonly known as the "title loan."
Consumer advocates caution that in many cases the title loans are simply unconscionable. Often, title loans carry an interest rate of more than 90% -- even as high as 140% -- on a loan of just a few thousand dollars. Under such circumstances, it can take years to pay off this low-cash loan. And all the while, the borrower's car is at risk, because title to the vehicle serves as security (or "collateral") for making the loan. No one would knowingly enter into such a deal unless they were absolutely desperate. Normal loans carry interest rates of single digits and possibly percentage points into the teens.
Once the province of organized crime, loan sharking is now conducted under the guise of ordinary banks. Business is booming and the high profit return on title loans has attracted pooled investment money from here and abroad. These entities do business with ubiquitous internet advertiser, 1-800Loanmart, as well as some smaller "mom-and-pop" operations scattered throughout the state.
Photo credit: David Baz Jenkins/Caters