NPR’s Scott Simon talks to Diane Standaert of the Center for Responsible Lending about car title loans.
SCOTT SIMON, HOST:
Joining us now is Diane Standaert of the nonprofit Center for Responsible Lending in Washington, DC. Thank you very much for being with us.
DIANE STANDAERT: Thank you for giving me the opportunity to speak with you.
SIMON: We’re talking about car title loans and consumer loans. What are the differences?
STANDAERT: Car title loans typically carry 300% interest rates and are usually due within 30 days and provide access to a borrower’s car title as collateral for the loan. Consumer loans have no limit on the rates they can charge and also take access to the borrower’s car as collateral for the loan. And so in some states, like Virginia, there’s very little difference between predatory practices and consumer consequences of these types of loans.
SIMON: How do people get tricked?
STANDAERT: Lenders give these loans without worrying about the borrower’s ability to pay them given all the other expenses they might have that month. And instead, the lender’s business model is based on the threat of repossessing that collateral in order to continue paying the borrower’s fees, month after month after month.
SIMON: Yes, so if someone repays the loan within 30 days, it disrupts the business model.
STANDAERT: The business model is not about people paying back the loan and never coming back. The business model relies on a borrower coming back, paying the fees, and refinancing that loan eight more times. This is the typical car title and borrower.
SIMON: Yes, but on the other hand, if they only have one car in their name, what else can they do?
STANDAERT: So borrowers report having a range of options to fill a financial gap – borrowing from friends and family, seeking help from social service agencies, even going to banks and credit unions, use the credit card they have, work out repayment plans with other creditors. All of these things are better – much better – than getting a loan that wasn’t on good terms to begin with. And in fact, research shows that borrowers access many of these same options to eventually escape the loan, but they just paid hundreds of dollars in fees and are worse off.
SIMON: Is it difficult to regulate these kinds of loans?
STANDAERT: So the states and federal regulators have the ability to curb the abusive practices that we see in the marketplace. And states have tried to do that for the past 10 to 15 years by adopting and enacting limits on the cost of these loans. Where states have loopholes in their laws, lenders are exploiting them, as we’ve seen in Ohio, Virginia, Texas and elsewhere.
SIMON: What are the gaps?
STANDAERT: So in some states, payday lenders and car title lenders will pose as mortgage lenders or brokers or credit service agencies to evade state-level protections on the price of these loans. Another type of loophole is when these high-cost lenders partner with entities such as banks, as they have done in the past, to again offer loans that far exceed what the state would allow. other.
SIMON: So if someone borrows – I’m going to make up a number – $1,000 on one of these loans, how much could they be responsible for?
STANDAERT: They could end up paying over $2,000 in fees for that $1,000 loan over an eight or nine month period.
SIMON: Diane Standaert from the Center for Responsible Lending, thank you very much for being with us.
STANDAERT: Thank you very much.
NPR transcripts are created in peak time by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative recording of NPR’s programming is the audio recording.