Cash-strapped consumers in California are turning to a growing number of auto title lenders to supply quick cash at high interest rates. Nearly 100 companies with multiple locations are licensed to issue car title loans in the state.
The California Department of Business Oversight reports that 2012 saw a 35 percent run-up in the number of lenders offering this alternative financial product, which San Francisco consumer attorney Bryan Kemnitzer calls "outright predatory lending." His firm filed a lawsuit in Southern California on behalf of Corona resident Ronald Davis, who took out a $5,000 title loan at 140 percent interest from Car Capital Inc. in June 2007 and made payments totaling more than $21,200 over 3.5 years. In April 2012, the company repossessed his car, claiming that he owed another $14,555.
Auto title lenders say they provide a necessary consumer service to people with no other options, and that the risky loans require the higher interest rates. "The biggest problem is that you are putting such a valuable asset – your car – at risk," said Maria Asturias of the Center for Responsible Lending in Oakland. "It's a necessity to keep your job, get kids to school, drive to medical appointments." California caps interest rates at 30 percent for consumer loans below $2,500, but loans above that amount have no limits. Although legislators have tried to pass laws that would further restrict auto loans, no bill has yet been successful.