People who take out auto title loans often end up losing their vehicles, according to a new study from the Consumer Financial Protection Bureau that casts the industry in a negative light.
One of every five borrowers of single-payer auto title loans have their car or truck seized by the lender, according to the study of loan records.
The data also show that borrowers can fall into a cycle of relying on auto title loans, a dynamic similar to what the bureau found for payday loans.
Four out of five loans are renewed on the day repayment is due because the borrowers cannot pay off them off. More than two-thirds of borrowers end up taking out seven or more loans in a row, meaning that they are in debt for extended periods of time.
The bureau’s director, Richard Cordray, suggested that the study provided evidence that auto title lending could pose “dangers” to consumers, especially in the case in which they lose access to their car just when they are financial stressed.
“The collateral damage can be severe if they experience serious challenges getting to their job or even to the doctor’s office,” he said.
The data for the study was taken from a non-public data set of 3.5 million anonymized, single-payment auto title loan records from 2010 through 2013.
The typical loan was for $700, and its cost translated to an annual percentage rate of about 300 percent.
Auto title loans often serve as an alternative to payday lending in some states, including states that have regulated payday lenders.
The bureau is working on a rule for short-term, small dollar loans meant to prevent borrowers from falling into borrowing “traps” in which they become dependent on high-cost payday loans. The most recent outline of the measure also would affect auto-title loans, a bureau official said.
The study only looked at single-payment loans, in which borrowers repay the original amount plus interest and fees in one payment. The bureau is also looking at installment loans, the official said.
