States to Protect Borrowers Who Turn to Cars for Cash

Wall Street Journal
July 19, 2010
Reddy, Sudeep
P. A3

Several states are cracking down on short-term, high-interest loans backed by car titles that often result in consumers losing their vehicles. Auto title lending will become illegal in Wisconsin this year, and Virginia will impose new restrictions beginning on Oct. 1. Illinois capped car title loans at $4,000 in 2009 and adopted new limits, and six other states have implemented new regulations since 2007. The new Consumer Financial Protection Bureau is expected to regulate the industry nationwide. The loans are shorter and more expensive than loans used to purchase a car, and they often lead to months of debt when borrowers extend them. "The title loan really takes precedence over other obligations," said Leslie Parrish of the Center for Responsible Lending. "But paying that back in a short period of time is really hard. For the most part, what they end up doing is paying the fee over and over again each month because they can't tackle that large principal payment." Arizona recently enacted legislation to limit payday lending, and many industry lobbyists and consumer advocates expect that these lenders will shift their business to auto title lending.

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