This story appeared in Bank Digest.
The CFPB has issued a report that examines consumer usage and default patterns for single-payment vehicle title loans. In vehicle title loans, according to the report, a lender takes a security interest in the borrower’s vehicle, and the loan approval and amount are primarily based on the vehicle’s value, rather than a credit check and traditional underwriting. The bureau’s press release described these loans as high-cost, small-dollar loans borrowers use to cover an emergency or other cash-flow shortage between paychecks or other income.
The bureau’s report found that one in five borrowers who take out a single-payment auto title loan have their car or truck seized by the lender for failing to repay the debt. The report also found that more than four in five of these loans are renewed the day they are due because borrowers cannot afford to repay them with a single payment and that more than two-thirds of such loan business comes from borrowers who eventually take out seven or more consecutive loans and are stuck in debt for most of the year.
CFPB Director Richard Cordray said the report’s findings present “real concerns for consumers.” He went on to say, “When borrowers lose their personal vehicles, they also lose mobility. For those who have to walk away from a loan without their car or truck, the collateral damage can be severe if they experience serious challenges getting to their job or even to the doctor’s office.”