Car-title lending, where the owner of a car uses his/her car title as collateral to receive a loan, will become illegal in Wisconsin and will face new regulations in Virginia later this year. Already, Illinois has capped car-title loans at $4,000 and has hit the industry with numerous restrictions. Car-title loans, which are shorter and much more expensive than a typical auto loan, are offered as one-month loans of up to half the value of the borrower’s vehicle. But the reality is that few borrowers are able to repay the loan in just one month, what usually happens is that the borrower extends the car-title loan for several months and many of those borrowers eventually slip behind on their payments and lose their vehicle to the car-title lender. Just like payday loans, car-title loans are high interest, difficult to pay back and often make financial difficulties worse. When a debtor loses their car to a car-title lender, they are often losing their only mode of transportation to their job which could cause income loss in the long-term and even unemployment if the debtor is unable to continue working because of losing their vehicle. Many experts are saying that because many states are clamping down on payday lenders, many of those lenders are shifting to the car-title lending business. We need the new, tough restrictions in the car-title lending business to protect consumers from abuse. Legislators around the country are already implementing or considering the following types of restrictions on the car-title lending industry:
- Restrictions on car-title loan amounts. Illinois is already restricting how much car-title lenders can loan debtors. Currently many states allow car-title lenders to 50 percent of the car’s value which can become too much of a burden for debtors to pay.
- The banning of balloon payment structure for car-title loans. Many car-title lenders structure their loans where the biggest payment is last which often forces the borrower to take out a new loan just to pay off the first one.
- Time limits on how soon a new car-title loan can be issued. Some states are considering prohibited car-title lenders from issuing a new loan to any debtor who had an outstanding loan in the previous 15 days.