However, Ruoff says of the borrowers, "They are operating on false hopes. No doubt that they are all bad credit risks and live in communities where credit is not as freely available from mainstream lenders. You don't find banks in the same strip malls where you find title lenders. Part of it is a question of education, and part of it is a bad history from banks and credit unions and those places do not have the best reputation."
It's doubtful you'll see national legislation on these issues. "It's much more likely that each state will have to make individual legislation," says Ruoff.
Fox says the
latest study, released on Nov. 17 by the Consumer Federation of America, found that out of 11 states that allow title lending, almost half are vulnerable to predatory lending, either through weak authorizing laws or failure to close consumer-loan loopholes.
Fox says, "Although states are trying to implement laws and regulations on title loans, many of the bills have been shot down or vetoed, thus continuing the cycle of debt for millions of Americans."
Consumer groups would welcome title loan restrictions that require longer loan terms and provide borrowers affordable installment repayment schedules rather than paying back one lump sum so soon after the loan is made. Another proposed restriction would limit interest rates and require lenders to judge each customer's ability to repay before making the loan.
Advocates would also like to see more responsibility taken by states, by providing borrowers with protections in the event of default. And they lobby for borrowers' post-repossession rights.
Fox says the loan repayment schedule should allow the borrower to pay back the principal and accrued interest over a reasonable period of time, rather than requiring one massive lump sum payment shortly after the loan is made.
Jessica Dvorak, deputy administrator of the Iowa Consumer Credit Code points out that the idea of triple-digit rates on secured loans is ridiculous.
"The aspect of these transactions that make it look like a pawn or open-end credit over a reasonable period of time is just part of the debt trap," she says.
Title lending shops opened their doors in Iowa in June of 2004. The Iowa Attorney General's Office started receiving complaints just one month later. Dvorak says she feels that people going to these title lending shops don't understand what they are getting into.
"They are not given the complete truth about the interest on loans or when the loans start incurring interest and that if the loan is not paid on time, their cars will be taken away."
Dvorak says that legislation has been put in place that will start to regulate title lending in the state..
On face value alone, a title loan might seem attractive, especially if you need cash right away or have a problem getting a loan from a traditional lender such as a bank, credit union or savings and loan.
Critics stress that there are alternatives to title loans that offer much better rates without the high risk of car repossession.
"It's important that people understand that title lenders are not the only option for borrowers facing the need for additional cash," says Fox.
Alternatives to such loans include, but are not limited to:
"Education is obviously very important, and we have found that borrowers are being deceived by the false hopes title lending companies advertise," says Drysdale.
"It's intellectually dishonest for title lenders to say that these loans are an oasis for an emergency situation. The only thing it does is put the emergency off for a month and ends up putting those people in a deeper hole that leaves many without transportation."