Auto Title Loans Offer Quick Vacation Cash, But Critics Warn Of Rising Debt – Cronkite News
Advertisements and online announcements for auto title loans make them especially attractive during the holiday season when many families are in need of extra cash.
“I didn’t have a lot of money back then, I wanted to buy Christmas presents, pay bills for my family,” said Scott Sweetalla, a father of two.
The US Air Force veteran took the tour and thought he had struck a deal when he called Maximum Title Loans.
“And the gentleman who answered the phone asked me about my vehicle and then said ‘I can get you $ 2,000 for $ 150 a month’ and I thought, wow, that was awesome . ”
But he also had to pay $ 300 more per month in interest. When Sweetalla fell behind, Maximum Title Loans called their referrals.
“In my case, they called them over and over again,” he said. “My sister doesn’t even want to talk to me anymore because of this.”
Maximum Title declined an interview request and declined to comment on the terms of this or any other loan.
Seven months later, when Sweetalla could no longer make the payments, Maximum Title sent someone home.
“I woke up the next morning to go to work and my car was gone. My heart sank a little. I kind of understood what it could have been, ”he said.
As the number of auto securities lending companies grows, customers fear they may not understand the risks.
“They keep going into debt because they think it’s the only option available to them,” said State Representative Debbie McCune Davis, D-Phoenix. “I think we are actually pushing these families to take on more debt and take them away from opportunities for themselves and their children.”
After the law that allowed payday lenders to operate in Arizona expired in 2010, auto title loans fulfilled a similar role.
“If you go through certain neighborhoods, we know it’s like an economic red line. We know they envision families that earn just $ 40,000 or less a year, ”McCune said.
McCune said she was working with consumer groups to ask the legislature for more stringent regulations to “tighten up some of this.”
“Anything that limits this availability will simply force consumers to go either to foreign lenders, to tribal lenders, to unlicensed lenders, maybe someone in an alley,” said Scott Allen, president. of the Arizona Title Loan Association. “That is, it is certainly not a benefit to consumers in any state, particularly Arizona.”
Allen describes auto title lending as “quick, efficient and convenient.”
He said reviewers should speak to consumers who have had a successful experience with a lender and appreciate the service they provide. He made Michael Donahoe, a securities lending client, available to talk about his loans.
“It has always worked, I haven’t had any complaints about the fees,” Donahoe said.
Donahoe said he worked as a lawyer for 40 years, practicing administrative law for airlines and business aviation. Now retired, he says he does legal advice.
He said he has taken out eight securities loans in the past 12 years and typically repays the loans within 90 to 120 days.
“The best thing about Cash Time is that it’s really fast,” he said. “They are making a good profit on me. So we both win, ”Donahoe said.
Federal regulators are working to make sure consumers understand the terms of their loans.
The Consumer Financial Protection Bureau, a federal agency created in 2010 under the Dodd-Frank Wall Street Reform and Consumer Protection Act, is considering a proposal to end “debt traps” that would include advice to lenders for assess whether a consumer has the capacity to repay the loan.
“There is currently no federal rule that requires lenders to determine whether or not the consumer has the ability to pay small loans like payday loans or auto title loans.” said Christopher Peterson, special adviser to the director of the consumer office.
“We are very concerned about market practices that appear to trap consumers in debt,” Peterson said.
The office plans to announce a notice of regulatory proposal as early as 2016, followed by a 90-day public comment period. But there is no timeline for when or if a new regulation will come into effect.
In the meantime, the industry continues to grow. But it’s unclear exactly how many auto title lending companies have replaced payday lenders in Arizona.
“Since Sunset became active in July 2010, we have had an increase in sales finance licenses,” said Lauren Kingry, superintendent of the Arizona Department of Financial Institutions. “However, it is difficult for us to determine if these are payday lenders or if they are companies interested in a simple sales finance license.”
The department also takes care of consumer complaints.
“Many complaints are resolved by simply discussing what was signed and discussing the details of the transaction without any further action being taken on the part of the consumer,” Kingry said.
Sweetalla is still looking for her car.
“I see a similar vehicle every now and then on the street and I’m like no. This is not mine.”
He will not look for another auto title loan.
“The money you would get from these people is not worth what’s going to happen later.”