A Martinsburg, W.Va., mother was overjoyed when her son won a selective
spot at the American Musical and Dramatic Academy in New York, but the
drama bled into real life when she took out a car title loan to pay an
unexpected fee to reserve his dormitory space. Mildred Morris, a single
mother with a steady federal job but no savings or credit cards, began
the process of securing a college loan to pay Jonathan's tuition but was
blindsided by the $700 dorm fee. She used her 2002 Pontiac Sunfire as
collateral at Fast Auto Loans -- which quickly checked her references
and then wrote her check. It warned that if Morris failed to make her
payments, they could repossess her car. It was not until later that she
realized how steep the interest rate on her loan was: 300 percent
annually. "I should have taken time to go over it," Morris conceded.
"When I saw how large it was, and I was like, wow." Morris fell behind
on her payments and her vehicle eventually was seized by Virginia-based
Fast Auto Loans. "I ended up losing my car over $700," she said. "I
didn't want to let my car go, but I didn't have a choice" after falling
behind on payments and seeing her references -- relatives, friends, and
even her job supervisor -- receive calls from Fast Auto. Consumer
protection advocates have long raised doubts about this type of credit.
Car title loans, which are now regulated differently in each U.S.
state, are on the list of priorities of the newly established Consumer
Financial Protection Bureau, which officially begins operations on July
21. The Center for Responsible Lending's Uriah King, who says the title
loan industry's "entire business model is loans that are made without
the ability to pay," would like to see the CFPB restrict how often the
products can be renewed -- a process that allows the lender to continue
charging fees and interest but keeps the principal balance high. Jean
Ann Fox of the Consumer Federation of America, meanwhile, hopes the new
regulator will force title lenders to consider a borrower's ability to
pay back the debt.