Consumers that are strapped for cash are exposed to a new place where they can find money and that is in their driveways. Sounds interesting, right? Well, there is also a catch to it. Looking for another option other than the newly hardened constraints on payday loans and smaller loans, short term lenders are forcing Americans to seek a higher loan amount than is necessary. These short term lenders use the consumer’s vehicle as collateral, but only vehicles that have a free and clear title.
These purported auto title lenders are taking over California as well as twenty four other states that have lenient regulations. They own physical offices in various California title locations. This is the same thing that home equity lenders did in subprime lending – asking the homeowner to put up a home completely paid off – using collateral in the hope of getting financing.
These auto title lenders are flourishing as a result of the large principal and high rate of interest that they are charging the consumers. Many of these consumers are being ripped off without suspecting that they are trapped into a cycle of debt. Most borrowers will have their vehicle repossessed due to failure of repaying these exorbitant loans.
Many experts see this type of lending as a legal way to steal someone’s vehicle. The auto title lenders present loans to consumers that appear to be what they want, only to find that they just keep making payments without any end in sight until they lose their vehicle to the auto lender. A consumer in Lemoore, California, Jennifer Jordan was at the mercy of the auto title lenders, but through a legal hiccup, she was able to escape the loan trap.
58 year old Jennifer needed approximately $400 to pay her household expenses that were accumulating after her mother’s death. She sought help from one of these auto title lenders, Alliance Cash Advance. The company told her that she would not be able to get such as a small loan and was offered $2,600 instead. She later found out that her yearly interest rate on that amount was 153% - outrageous! To get that ridiculous interest rate, Jennifer had to use her car as collateral. Of course, she lost her vehicle to a tow truck pulling it from her driveway one night while she was asleep..
Jennifer Jordan is not the only consumer with a similar experience. For that reason, regulators are launching a stellar crackdown on those that claim to be payday lenders. Many consumers cannot understand the logistics of this all. Loaning someone more money than necessary is absurd. In the state of California, there is no limit to the rate of interest on consumer loans in excess of $2,500 and that is why Alliance Cash Advance forced Jennifer to take out a loan for $2,600.
California does not have any strict regulations on auto title loans and so lenders are not accountable to any particular rules and systems. Moreover, these unscrupulous auto title lenders will withhold financing information to unsuspecting consumers. Don’t ask – don’t tell! In Jennifer’s case, she got lucky due to a mistake made by the employee in not having her sign a standard document. So, Jennifer was able to sue and had her vehicle returned to her.