They’re commonly called “cash for cars” loans. And this week, the state is reminding consumers to be wary of auto-title loans, where personal vehicles are used as collateral for a cash loan – often at crushing interest rates.
These loans, often peddled to consumers with poor credit ratings and few borrowing options, have been around for years, but California officials report there’s been a spike in recent years.
“The market is growing by leaps and bounds,” Tom Dresslar, spokesman for the state Department of Business Oversight, said Friday.
The number of auto-title loans jumped 140 percent in the last three years, from 38,148 to 91,505 between 2011 and 2013, the DBO said. At the same time, the amount of principal on those loans grew 150 percent, from $133.9 million in 2011 to $334.8 million in 2013.
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One Sacramento woman, Shanell White, is suing an auto-title loan company that she says excessively charged her more than $11,000 in interest, payments and penalties over three years – on a $3,900 loan against her aging Lexus SUV. The case, filed last summer in Sacramento Superior Court against Wilshire Commercial Capital of Los Angeles, is in arbitration.
On Friday, White’s attorney, Bryan Kemnitzer of San Francisco, said the case is pending with more depositions being taken next week.
Kemnitzer, who said he’s been approached by at least six plaintiffs but is representing only two – White and a client in Alameda County – said the cost of taking these cases to individual arbitration, as required by law, is prohibitively expensive.
“I wish the state Legislature would step up and ban (auto-title loans) altogether,” he said. “It’s just pure loan-sharking tactics.”
If borrowers fail to make the payments, their cars can be repossessed. And in some cases, lenders can remotely disable a car’s engine using GPS tracking devices.
State law does not limit interest rates on consumer loans of $2,500 or more. In 2013, virtually all auto-title loans – 99.99 percent – were above that amount, meaning there was no cap on interest rates. In most cases, the annual percentage rate on those loans ranged from 70 percent to 100 percent and higher, the DBO said.
“It’s understandable that vulnerable consumers in a tight spot would turn to any lending source that offers help,” DBO Commissioner Jan Lynn Owen said in a statement. “But auto-title loans should be a last resort.”
For more details, go to dbo.ca.gov.