Even with a full-time job, Shanell White found herself in financial straits. Her 12-year-old car needed new brakes. On top of rent and college courses, she became legal guardian for her infant niece, which meant diapers, baby food and $300 a month for day care.
With no savings and poor credit, the single Sacramento, Calif., resident couldn’t qualify for a conventional bank loan, and her monthly paycheck was stretched to the snapping point.
“It was an emergency. I had no savings and was going negative every month,” said White, 38, a program specialist for the California Department of Corrections and Rehabilitation.
Desperate for cash, she borrowed against her only asset: her car. Answering an online ad in January 2009, White took out a $3,900 loan on her aging white Lexus sport utility vehicle, signing a three-year contract for monthly payments of $290. In a box above her signature, the loan’s terms were plainly stated: an annual percentage rate of 79.9 percent and total finance charges – over three years – of $6,541.44.
By the time her 36-month contract was nearing completion, White had paid more than $11,000, including an extra $1,100 in fees to get her Lexus back after it was repossessed for several late payments. But when she went to make her final payment, White was stunned to discover that – with interest, penalties and a balloon payment – she still owed another $3,714. She declined to pay. Ultimately, the car was repossessed a second time, in August 2012.
White is now suing the loan company, Wilshire Commercial Capital of Los Angeles. Efforts to get comment from a Wilshire representative were unsuccessful.
A growing number of title loan companies such as Wilshire are charging high interest rates to consumers who are desperate for cash.
Auto-title loan ads populate the Internet and airwaves with catchy names like “INeedCashNow.net,” “PinkSlipLoan.com” or “123FundMe.com.”
Their pitch is typically the same: Get fast cash with no credit check, based on the value of your vehicle. Bad credit or bankruptcy? Not a problem. No long-term job history? No worries.
Consumers hand over their cars’ pink slips as collateral. If they default, their vehicle is repossessed and sold by the lender.
“It’s outright predatory lending,” said Bryan Kemnitzer, a San Francisco consumer attorney, who started getting complaints several years ago about Californians losing their cars to auto-title lenders.
Auto-title lenders say they’re providing a needed consumer service, offering cash loans to people with no other options because of poor credit or no access to traditional bank loans. They also say the risky nature of the loans necessitates charging high interest rates.
Considered “subprime financial products” by state regulators, auto-title loans have been targeted by consumer groups that seek to limit the triple-digit interest rates or ban the loans altogether.
“The biggest problem is that you are putting such a valuable asset – your car – at risk.
Nationally, only 21 states allow auto-title loans, and some of those, like Florida, have capped the allowable interest rates. The U.S. military also bans lenders from charging more than 36 percent interest on auto-title loans to service members.
Opponents of auto-title loans advise consumers to use them only as a last resort.
“These products are dangerous for people,” said Asturias, who urges cash-strapped consumers to look at alternatives such as: borrow from friends or family; obtain a loan from a bank or credit union; get money-managing help from a credit counseling agency; or trade in the vehicle for a less expensive model, rather than borrow against it.
“Maybe you can sell it and buy a less expensive car,” Asturias said. “Use the rest to give yourself a cushion and pay off your expenses, without putting [your vehicle] at risk.”
For White, a single mom who’s now raising a daughter of her own in Elk Grove, Calif., it’s been a hard-earned lesson.
“I can’t get my car back, … but I do want other people in my situation to know there are consequences to taking out an auto-title loan. It’s not a good loan for anybody.”