Fast cash, high price


Carlos Smith needed rent while he was in between construction jobs, so he tapped his biggest asset – a paid 2008 GMC Sierra Denali pickup truck. He promised it to a storefront lender as security for a $ 4,000 “auto-title loan” with an interest rate of 70%.

This 2013 transaction led to a three-year ordeal in which Smith’s debt grew even as he made payments. When he was late, the lender would send a tow truck driver to take possession of his van. He would catch up on payments plus fines and storage fees, then fall behind again and soon find the repo man at his door or his phone ringing with the debt collector. He started to feel harassed.

“At first they were talking really well, like ‘You can pay it off in four months, there shouldn’t be a lot of interest, and you’ll be fine,’ he said. “But immediately after I signed the documents, it looked like they intended to get my truck back.”

Twenty-five states and the District of Columbia have banned or capped interest rates on short-term loans, which consumer advocates say are as predatory as payday loans. But California has few restrictions on “cash for car” loans, which have increased in the Golden State – as do the number of repossessions.

Monique Limón MP D-Santa Barbara sponsored a bill, AB2953, to cap auto loan interest rates at 36%. This is the same cap that Congress has placed on these loans to military personnel or their families for the stated purpose of protecting them from predatory loans.

The bill was adopted by the Assembly at the end of May on a bipartite vote of 54 to 1 (with 23 non-voters) – a major achievement, since previous such bills never managed to get out of either state chamber.

On Wednesday, he hit a roadblock in the Senate Banking and Financial Institutions Committee, which needed four votes to pass it. The vote was 3-2 with two abstentions. However, the committee invoked a process to put it for another vote next week.

“The conversation is not over,” Limón said. “If someone takes out a secured loan using their car as collateral, they shouldn’t be charged such an exorbitant rate as to cause them to lose one of their most important assets. “

Industry representatives said they are helping people with poor credit who can’t qualify for bank loans or credit cards, and warned they can’t work with the limits.

“With this bill, the industry would have no choice but to walk away,” Joe Lang, a lobbyist for Community Loans of America, said at the Senate committee hearing. “For many consumers who have low credit scores, who are unbanked, who have no other options, you will be removing their last credit option.”

What is a car loan?

Cash for cars loans, also known as auto title loans, pink coupon loans, title pledges, or title pawns, are short-term, high-interest loans secured by a vehicle title. Most are for about a quarter to a half of the car’s value and carry an annual percentage rate above 100 percent.

If consumers cannot pay them within the usual 30-day period – as happens 80% of the time, according to the Consumer Financial Protection Bureau – lenders offer to roll them over into new loans, adding fees and interest. This can increase the initial loan. The Federal Trade Commission says consumers may end up paying more in fees than the original amount they borrowed. If they can’t pay, the lender can send a tow truck to seize the car. Consumers then have to pay even more fees to get it back.

Pink Coupon Loans in California in 2017: 118,431 loans worth $ 380.5 million

Repeats: 20,280 vehicles

Auctions: 12,687 vehicles

Sources: Consumer Financial Protection Bureau, Federal Trade Commission, California Dept. of Business Oversight

Limón said she was not trying to ban lending.

“I understand that life goes on and people need emergency cash sometimes, but we are trying to provide consumers with the best product without harming them,” she said. At least one California lender, One Main Financial, already offers auto loans at an annual interest rate of 36%, proving that the rate is sustainable, she said.

About 17% of Californians with pink coupon loans have their cars confiscated, according to the State Department of Business Oversight, which collects industry data. Last year, the cars of 20,280 borrowers were seized, out of 118,431 outstanding securities loans, the report said. More than half of the vehicles seized (12,687) were sold at auction.

“These loans are like legalized auto theft,” said Rosemary Shahan, executive director of Consumers for Auto Reliability and Safety, a consumer advocacy group.

“They represent an extremely high risk for consumers” who can end up losing their car, taking on more debt and depleting their credit with a repossession. In fact, she said, many consumers might be better off selling their cars and buying cheaper ones because they wouldn’t be racking up additional debt because of interest and fees.

At the same time, she said, the loans do not pose such a high risk for lenders because they are guaranteed pink slips of the cars, can track them with GPS and can legally seize and sell them. at auction. Most loans are for half or less of the car’s value.

In Smith’s case, his loan of $ 4,000 ultimately cost him more than double that amount, plus a tremendous amount of stress.

“I felt betrayed; I felt they took advantage of me, ”said Smith, 49, a San Leandro resident who recently graduated from construction management and building inspection. “Even now, every time I hear a tow truck, I jump. A vehicle is so important, it’s the way you go about your life, get to work, pick up the kids.

Carolyn Said is a writer for the San Francisco Chronicle. Email: Twitter: @csaid


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