NEW YORK (AP) – People who put their cars up as collateral for what are supposed to be short-term emergency loans are being hit with interest rates of 300 percent, a high rate of repossession and long repayment periods.
That’s according to a study by the Consumer Financial Protection Bureau released Wednesday. The report is the first by federal regulators to look at the auto title lending industry, which has grown significantly since the recession but remains banned in half the country. The results could lead to additional regulations on the industry, like its financial cousin payday loans.
The CFPB’s study found that the typical auto title loan was about $700 with an annual percentage rate of 300 percent. Like payday loans, borrowers have a high likelihood of renewing the loan instead of paying it off.
“Instead of repaying their loan with a single payment when it is due, most borrowers wind up mired in debt for most of the year,” said CFPB Director Richard Cordray in prepared remarks.
Worse, one out of every five auto title loans made results in the borrower’s car being repossessed, according to the study. The CFPB’s results were worse than data compiled by the Pew Charitable Trusts, which showed 6 to 11 percent of all auto title loans result in repossession.