Car title loans are among the most expensive loans available, with interest rates sometimes exceeding 300 percent for one month, according to the Consumer Federation of America. People who have poor credit but are desperate for cash take out the loans, which are available without a credit check and with minimal income verification. Loan amounts depend on the value of the vehicle, and on average are $250 to $1,500, but the Florida attorney general reports that loans can be as much as $10,000 -- and due in as little as 30 days. Defaulting on the loan can lead to repossession after just one month.
Car title loans are available by bringing a car and the title to the car to the office of a lender offering car title loans. The lender keeps the title -- and in some cases a copy of the keys -- after making the loan. A recent pay stub is usually the only requirement for income verification. Some car title loans are for 30 days, but some states allow for longer terms.
Some states have their own laws regulating the collection of car title loans, but there is not a specific federal law for car title loans. Car title loan debt collectors must abide by the Fair Debt Collection Practices Act, a federal law regulating debt collection of all types, including credit card debt and vehicle repossession by conventional lenders, such as banks and credit unions. States have passed their own laws on car title loan collections after complaints from consumers about the high interest rates and aggressive collection tactics.
State laws regulating the collection of car title loans vary but share similarities. Florida law requires the lender to notify the borrower if it intends to repossess the vehicle because of a missed payment. The law states that the car owner must have a chance to remove personal property from the vehicle before surrendering it. The law also gives the car owner the option of voluntarily surrendering the car and avoiding a forced repossession.
Some state laws may also give the borrower a chance to regain possession of the car after the repossession by paying the amount due on the loan and any fees associated with the loan default and repossession. In Florida, the lender must contact the borrowers 10 days in advance in a scheduled sale of the vehicle and tell the borrower the balance due on the loan. The borrower then has 10 days to pay the money or lose the vehicle.
In Illinois, car title loan lenders may not repossess a car and then lease it back to the owner. Illinois introduced the legislation in 2009 after complaints about citizens paying several hundred dollars a month to rent their own cars from car title loan lenders following loan default. Illinois law also requires car title loan lenders to tell borrowers how they can seek help after receiving delinquency notices. The lender must provide a number for a toll-free consumer hot line in the state offering help for people trying to avoid losing their cars to repossession.