Is it Literally Impossible to Pay Off a Title Loan?


I recently published a law review article entitled Grand Theft Auto Loans with Ozy Adams.  It discusses title lending based upon data collected by the State of New Mexico.  This article cover a tremendous amount of ground, but as these things tend to go, I have now heard of two critical topics we should ahve discussed but didn't. 

We do discuss how the loans are almost always interest-only and can only be paid off all at once, not in installments.  We also talka bout how these loans are also typically entirely asset-based, meaning that if a customer has no income at all, she can still take out a large title loan. We also discuss repo rates per loan (between 5% and 22%),  repo rates per customer (between 20 and 70%), total vehicles lost once reclamation is taken into account per customer (between 13% and 60%), interest rates for title loans (most commonly 300% per annum or 25% per month), percentage of auto value lenders will lend on (25-40%), and amount returned to customer from sale proceeds after repossession and sale (next to nothing once the fees are racked up). 

Here are two important things we missed.  First, it seems that the process of repossessing and then having a customer redeem the vehicle is extremely profitable for the lender and very expensive for the client.  Having asked around bit this past week, I am hearing regular stories about this from legal aid offices around the state.  I don’t think I quite realized what a profit center repossession followed by redemption really was.  This also means that in states that report only vehicles ultimately lost to repossession, this added expense/loss is never accounted for and is thus not in the reported repossession numbers. This deserves further study.

Second, above I say the loans can only be paid off in one lump sum.  But I kid you not, folks, that is so wrong!  Reality check:  You can’t pay them off at all!  I do not mean that the customer cannot come up with the money.  What I mean is that the lenders find ways to keep you in the loans even if you show up with the total amount of funds owed.  They will not take checks from banks.  Even if you seemingly pay it off in full, they come up with charges they missed and keep asking for more.  They refuse to release titles.  They try to confuse customers, do not listen to customers, by hook or by crook, they simply will not take the principal to pay off the loan. One friend of mine who runs a CDC has documented these practices over and over again. He has found that unless they feel the law might get involved, the loans never die.

This is something that needs immediate attention.  In fact, if this has been your own or a client’s experience, I hope you write about it here.  In the meantime, spread the word to avoid this form of credit. It is far more dangerous that a payday loan, even if it is half- price interest.