Indiana prohibits car title loans to its residents with an annual interest rate above 36%. In 2006, the car title lending industry lost a fight in the Indiana legislature to have that interest cap removed. But now the industry's lawyers believe they have found a loophole in the restriction by drawing Indiana residents across the border into car title lender's Illinois offices to complete the loan paperwork. These loans violate Indiana law by charging more than a 300% interest rate. But while the lenders advertise to Indiana residents through Indiana media outlets, have the Indiana Bureau of Motor Vehicles record their liens, and repossess and auction cars in Indiana, they claim that the dormant Commerce Clause of the U.S. Constitution allows Illinois to be the only state that can regulate them and that Indiana's regulation is unconstitutional, even for loans made to Indiana residents.
CRL, joined by AARP, Consumer Federation of America, the National Consumer Law Center, Public Citizen, Indiana Legal Services, and the Notre Dame Legal Aid Clinic, explains the flaws in the industry's constitutional argument in this legal brief filed with the United States Court of Appeals for the Seventh Circuit. The brief explains that Indiana has compelling interest in protecting its residents from high-rate car title loans because such loans cause substantial harms to borrowers, who wind up in a debt trap that costs them huge amounts of interest and puts their access to employment, school, and health care at risk. And it explains that it is constitutional for Indiana to protect its residents from car title lenders because the lenders' relationship with Indiana borrowers is dependent on activities they conduct within Indiana, even if the lenders require borrowers to come across the border to sign the loan paperwork.