Title Lending’s Big Question: Dude, Where's My Car?

02/26/13



Shutterstock_110276351In a
new paper on title lending with Katie Fritzdixon and Jim Hawkins, we report data from a survey of over 400 title
lending customers across three states. To introduce this work, we wanted to
start off by talking about the important issues that title lending raises. The
biggest question, by far, is how many title borrowers end up losing their car?


Academics, consumer
advocates, and policymakers have focused on title borrowers' risk of losing car and hence their way to work, sometimes exclusively,
as a reason for restricting title lending. To figure
out how many borrowers are losing their only way to get to work, we must unpack
how many borrowers are losing their cars and how many of those have no other
way to get to work. The best
answer to the first question is gleaned from reports from state regulators. Several
states require title lenders to provide information about their operations. The
repossession rates of a few states’ lenders are summarized in the table below:

State
Year
#
of New Title Loan Agreements

#
of Repossessions

Repossession
Rate

TN
2008
161,417
14,832
9.18%

 
2007
139,319
18,199
13.06%

 
11/2005–6/2006
92,489
10,933
11.82%

 
2004
250,593
17,313
6.91%

OR
2009
17,820
2
0.01%

 
2008
10,136
1
0.00%

 
2007
8,568
32
0.37%

 
2006
15,726
125
0.80%

 
2005
17,801
114
0.64%

ID
2010
34,247
2382
6.96%

IL
10/2009–6/2011
155,094
7,334
4.73%

MT
2009
12,727
599
4.71%

VA
10/2010–12/2010
24,975


194
0.78%

TX
1st 3 Quarters 2012
19,144
259,691
7.37%

While
backing out precise repossession rates from these figures is difficult, it
appears that an educated estimate of--at most--around 10% of new title loans
result in the car being repossessed. Thus, at least 90% of borrowers don’t lose
their car. 

For data
on the second question—whether the vehicle borrowers used to secure the loan
was their only means of getting to work—we turn to our survey. We ask customers
the following question:

If
you lost the vehicle that you used to get your loan, how would you get to
work?

Do not work outside the home
12.16%

Use public transportation
14.14%

Another vehicle I own
40.20%

Walk to work
8.93%

Rides from friends/family
17.37%

Buy a new car
8.68%

No other way
14.64%

Number of Observations
403

So, based on our survey, around 15% of people using title loans are using their only means of getting to work as collateral for the loan. Assuming that our subjects are representative of title loan customers generally and assuming that people losing their cars have the same likelihood of being in that 15% as all customers, it appears that only around 1.5% of borrowers using title loans will end up losing their only way to get to work. These assumptions may be heroic, but the data we present here is literally the only data generated by academics available to answer this question--a question clearly at the heart of the debate over title lending. Based on the best estimates available, it appears that the frequency with which title borrowers end up stranded at home and unable to get to work is quite minimal. 

We don’t think the risk of losing one’s only way to get to work is the real problem with title loans, and we will turn in subsequent posts to the other risks title borrowers face.

Car graphic from Shutterstock.

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