Enact “Car-Title Loan” Law
Attorney General warns lawmakers – and consumers -- about car-title loans: “There is no justification for such astronomical interest rates.”
Des Moines. Attorney General Tom Miller today cautioned consumers to avoid car-title loans, which charge what he called “astronomical and unjustified interest rates” – and he renewed his call for legislation to stop “unconscionable” lending practices in car-title loans.
“Car-title loans are so expensive they just drive many people deeper into debt,” Miller said. “On top of that, they pose the major threat of causing people to lose their vehicles as well. They are a bad idea at the holidays or any time.”
And, for the third year, Miller appealed to the Legislature:
“Pass the car-title loan bill,” he said. “Car-title loans are secured loans, but secured loans should be much cheaper because they are backed by a vehicle as collateral. There is no justification for such astronomical interest rates. The Legislature should prohibit such abusive and unconscionable rates for car-title loans.”
Last year, for the second year in a row, the Senate approved a car-title loan law that would have capped car-title loan rates at 21 percent -- but the bill died when House leaders refused to debate or vote on it. “It’s a simple and fair approach. We need to solve this problem,” Miller said.
“Meanwhile, I hope consumers will resist appeals to get into car-title loans, for the holidays or anytime. We’ve heard of interest rates up to 360%, and right now there is no limit whatsoever. “It’s expensive and it’s risky,” he said.
“For example: If a person borrows $300 for the holidays at 360% interest, he or she will have to pay $44.55 of interest in just fifteen days, and have to pay it again and again each fifteen days if he or she doesn’t pay off the $300 principal,” Miller said. “What’s worse, if a payment is missed, the lender can start the process of repossessing the borrower’s vehicle. Repossession -- and loss of transportation to places like work and health care -- is a very severe threat to these Iowans.”
Miller encouraged consumers to try to work to get ahead by saving small amounts steadily, and, if necessary, by going to banks and credit unions that offer loans at far better rates.
Miller appeared at a State Capitol news conference organized by Sen. Joe Bolkcom and including incoming House Majority Leader Rep. Kevin McCarthy and Sen. Roger Stewart. “These are the folks who carried the ball in the past against car-title loans,” Miller said. “I’m very hopeful they can get it over the goal line this year.”
Background on “Car-Title Loans”
Car-title loans are secured by the consumer’s automobile or truck. Lenders actually keep an extra set of keys to the vehicle – and may start repossessing a vehicle if a lender is delinquent in making one payment. The first payment is typically due in fifteen days. If even one payment is late, the lender after ten days may issue a ‘right to cure’ notice informing consumers that they are in default, and that if they don’t correct the default the vehicle will be repossessed in 20 days. (If the consumer makes the required payment but is delinquent again within a year, the lender is not required to provide the right to cure and may repossess after 10 days of delinquency.)
Miller said car-title lenders have attempted to avoid interest rate limitations by claiming the debt is open-ended credit, much like credit cards. Open-end credit was deregulated in Iowa because federal law let out-of-state card issuers export their home state no-cap interest laws.
Miller also noted that car-title loan companies charge very high interest, but they do not run a credit check in order to determine if a consumer is able to afford such a costly loan – because the loan is secured by a vehicle. “The one indicator of predatory lending that everybody agrees on is making a loan without regard to ability to pay,” he said.
“Indeed, with the first payment due just 15 days after the loan, it is very unlikely that the consumer who needed $300 15 days ago will have $344.55 just 15 days later to pay off the loan,” Miller said.
“The result is that most consumers are on the ‘down’ escalator as soon as they sign car-title loan papers,” he said. “It’s very risky to consumers, but the car-title loan company – with the vehicle as collateral – is risking little or nothing.”