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CCI takes aim at predatory car title lending rates

The Catholic Conference of Illinois is urging support of House Bill 2468, which cracks down on exorbitant interest rates for car title loans.

The legislation calls for interest rates on loans taken out against the title of a motor vehicle to be capped at 36%. As one of 20 states that currently allow such loans, Illinois does not regulate interest rates, which can often reach 300%.

Car title loans are similar in structure to payday loans. The borrower seeks a loan based on the value of their vehicle, and the lender keeps the title as collateral while the owner continues to use the car. The borrower usually must repay the principal plus a fee in a single balloon — or lump sum — payment, and the lender has the right to repossess the car if the loan is not repaid. When the loan comes due, borrowers who can’t afford to repay it can renew it for a fee.

Companies that offer such loans usually attract customers based on location, convenience and customer service, according to a 2015 study by the Pew Charitable Trusts — leading to little comparison shopping for rates among borrowers. The same study notes that more than two million people annually use car title loans for needed cash.

Borrowers’ stories can be heartbreaking. Billie Aschemeller, a resident of Springfield, Illinois, testified before a state Senate committee about her car title loan. The original $500 loan taken out against the title of her 1995 Chevrolet Lumina was first boosted to $595 for a lien filing fee. She was then charged a 304.17% interest rate over a two-year period for monthly payments of $151.49, resulting in $3,040.76 in finance charges.

Many Illinois residents can tell similar stories. According to a June 2018 report issued by the Illinois Department of Financial and Professional Regulation, more than 413,000 individuals took out car title loans from April 2009 through December 2107 for a total of $778 million. The average loan was for slightly more than $1,035 with an average interest rate of nearly 200 percent.

Borrowers had an average monthly gross income of about $2,185, or $26,220 a year. The same report found that 72% of motor vehicle title loan borrowers earn $30,000 or less per year.