Auto title lenders are similar to payday lenders, except they use car titles as collateral. If the borrower defaults on the payments, the lender can repossess the car and sell it to repay the outstanding debt. Like a payday loan, auto title loans carry very high interest, are laden with exorbitant and often hidden fees, and are issued without regard to the credit of the borrower. The people who take out payday and auto title loans are low-income, with an average income of $26,000. On average, they renew their auto title loan eight times, eventually paying $2,142 in interest for $941 in credit, according to a report from the Center for Responsible Lending.
Because of a lack of other options, low-income borrowers essentially sign over their highest value asset for a few hundred dollars – and then end up accruing massive debt and potentially losing their cars.
In 2013 alone, almost 38,000 vehicles were repossessed in Texas for defaults on auto title loans, according to the Center for Public Policy Priorities. Though payday lending is still the majority of the market, auto title lending is on the rise – and so are repossessions. Now for every twelve auto title loans issued, one care is repossessed. The ones who don’t lose their cars still pay exorbitant interest and fees for relatively small amounts of credit.
Only around twenty states allow auto title loans, and most of them have imposed regulations. But there are no meaningful statewide regulations in Texas on auto title lending – even though it is a $4 billion industry in the state.
Several Texas cities, including Dallas, Houston, Austin and El Paso, have passed ordinances that restrict payday and auto-title lending. Several more, including Waco and Amarillo, are considering them. The idea of the regulations is usually to limit the amount of loan that a borrower can take out to a percent of income or assets (for example, not borrowing more than 70 percent of the price of the car), or limiting the amount of times that a loan could be renewed or refinanced.
Statewide reform to auto title lending in Texas may still be a long shot. According to the Tribune, “State leaders in business-friendly Texas have been reluctant to put new limits on any industry.”
In the meantime, over 100 Texans lose their cars each day.