Borrower Nightmares: $700 Dormitory Fee Costs Family Its Car

July 15, 2011
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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.
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