Title-Pawn Loans

Paying on paid-off cars

Title pawn loans are short-term, high-interest loans that use a borrower’s car title as collateral. Title lenders often target poor communities and military installations with promises of hassle-free fast cash. In reality, borrowers often do not understand the ultimate price of their title loan – which is cryptically hidden in contracts with confusing financial language.

When borrowers cannot keep up with payments on the triple-digit interest common in the business, title lenders take possession of borrowers’ cars -oftentimes their only transportation to work, the grocery store and doctors’ offices.

Lawmakers in Georgia and several other states have recognized the debt trap that title lenders set – with triple-digit interest rates, endless loan roll-overs and repossessions. Some states outlaw title pawn loans altogether. Kentucky caps the Annual Percentage Rate (APR) on title loans at 36 percent, and Florida caps title loan APRs at 30 percent – ten times less than Georgia.

Some of those existing and proposed solutions include:

* Level the playing field

Georgia law currently allows title lenders to charge a brutal 300 percent APR on small loans. This unreasonably high limit traps borrowers on a treadmill of debt and makes it difficult for Georgia’s working families to get their auto titles back from lenders. Other small loan lenders, regulated under the state’s Industrial Loan Act, operate under a 60 percent APR cap. Requiring the same of title lenders would level the playing field for all small loan businesses, and would help give borrowers a fighting chance to pay down their debt.

* Require an affordable installment plan on title loans

Currently, all title pawn loans are structured as a 30-day balloon loan. If borrowers miss a monthly payment, they either lose their vehicle or are forced to extend the loan – tacking on another month of interest.

* Require title lenders to refund surplus once a repossessed vehicle is sold

A borrower can lose a car worth $3,000 simply for defaulting on a $500 loan. Today, even if the lender sells the car at a profit – over and above what was owed – the borrower gets nothing. Georgia should require title lenders to return the difference to the customer after a car is sold to settle a debt.

* Title lenders should be licensed and closely monitored by the state

Consumers have nowhere to turn if they believe they have been victimized by an unscrupulous title lender. By licensing lenders and providing on-going oversight, Georgia could set and enforce standards to guarantee fair treatment of working families.