Car-title lenders under radar in lending debate

MONTVALE, Va. — The Dodge pickup has rust on the tailgate and a Harley-Davidson sticker on its back windshield. Beside it sits a Honda Accord with a big, white butterfly on the windshield and American flag butterflies on each side of the trunk.

There's the minivan sporting a tattoo parlor bumper sticker and a miniature San Francisco football jersey suctioned to a window of a red Cougar with a scuffed-up driver's side.

They all have one thing in common: Their owners didn't pay off a car title loan, and now they're getting ready for auction.

For years payday lenders have been the bad guy in the predatory lending debate while their close cousin, car title lenders, have cruised along unnoticed — and perhaps more disturbing for some — unregulated in several states. Many efforts to regulate the industry have failed as the lenders pour hundreds of thousands of dollars into legislative campaigns.

Advocates for the poor say they don't have the resources to fight both industries at the same time. Once the payday lenders are in check, they vow to go after car title lenders.

They claim title loans — short-term, high interest loans secured by a car title — can be even more disastrous than payday loans.

"They can both trap borrowers in long-term debt, but with a payday loan the collateral is a personal check. With a car title loan, it's the family's probably most important asset," said Leslie Parrish, senior researcher for the Center for Responsible Lending.

Car title lenders operate in nearly half the states, about a dozen of which have specific laws regulating how much the lenders can charge, Parrish said.

Where there are no laws specific to the industry, title lenders operate under regulations governing pawn shop brokers or other lenders, except in Virginia, where car title lenders have clinched onto laws that regulate credit cards.

By structuring their loans as open-end credit, the lenders can charge triple-digit interest and whatever terms they wish as long as they don't charge anything for 25 days. In most states, the entire loan is due in one month but can be rolled over and new fees charged.

This year, legislation was introduced in at least eight states, from Florida to South Dakota. Last year, 16 states took on car title lenders, and six of those — Iowa, Mississippi, Nevada, Montana, Oregon and Utah — passed some sort of regulations.