Louisianans will need to keep an eye on their wallets and their cars if their state legislators pass a bill to let lenders charge 300 percent annual percentage rate when people put up their cars as collateral for a loan.
What's more, the bills would make it all too easy for these lenders, who thrive on trapping people in debt, to grab borrowers' cars if they can't pay up.
Car title lenders induce people to take out loans they cannot afford, so they are forced to roll over these loans again and again, racking up ever more interest and - in some cases - losing their cars.
Groups representing consumers urge Louisiana legislators to reject this legislation, saying it will load yet another burden on people still digging their way out of Hurricane Katrina.
"The last thing Louisiana's working people need is to get in over their heads with one of these predatory lenders at a sky-high interest rate," said Keith Corbett, senior vice president at the Center for Responsible Lending, a nonprofit advocacy group against predatory lending. "Not to mention possibly losing their cars - for some of them, the only way they can get to work."
Consumer Federation of America, the Center for Responsible Lending, and Consumers Union, the nonprofit publisher of Consumer Reports, recently wrote the bill sponsors, asking them to withdraw the bills for the sake of Louisiana consumers.
"Our research shows these lenders charge annual rates as high as 300 percent on loans due within a month - a clear case of trying to entrap people in a cycle of debt, since few of these borrowers can clear up their financial problems in just a couple of weeks," said Jean Ann Fox, director of consumer protection at Consumer Federation of America, a nonprofit association of 300 consumer groups. "Louisiana legislators should not scrap its current protections against triple-digit interest rate car title pawns."
Louisiana law now generally caps interest on small consumer loans at 36 percent, a typical cap for state usury laws, and specifically prohibits title loans from masquerading as pawn transactions. Bills pending in the Louisiana legislature would legalize title loans at 300% annual interest for a new class of title lender and for payday loan outlets.
Car title lenders are booming in states that aren't adequately protecting their citizens. Just in Tennessee, title lenders took more than 17,000 vehicles from borrowers in 2004 alone.
For more on how these lenders prey on consumers, please see these two studies:
Contact Jean Ann Fox at Consumer Federation of America, 757-867-7523, or Michael Flagg at the Center for Responsible Lending, 202 349-1862, firstname.lastname@example.org