Utah laws are among the friendliest in the nation for extremely high-interest "car title loans," according to a new study by the Consumer Federation of America.
That comes after a Deseret Morning News series this past week reported that Utah laws similarly are among the most lax nationally for also-high-interest "payday loans" which has helped attract more payday loan stores here than 7-Elevens, McDonald's, Burger Kings and Subway stores combined.
Of course, the same lenders often offer both types of loans. Morning News visits to dozens of such businesses found they charge a median 521 percent annual interest on unsecured payday loans and 300 percent interest on title loans usually secured by providing lenders an extra set of keys to allow easy repossession of cars in case of default. "As with payday lending, Utah has virtually no protection for consumers in the short-term, high-cost, small-loan market for car title loans," said Jean Ann Fox, CFA's director of consumer protection. "I don't think you can get much friendlier to that industry" than Utah is, she added.
The new study by the Consumer Federation of America, a nonprofit consumer education group, looked at laws governing car title lenders in all 50 states. It also had volunteers visit lenders in 11 states, including Utah, to collect data on rates and practices.
It found that Utah is one of only 16 states where laws or court decisions specifically allow car title loans. Utah is among just seven of those states that have no caps on their interest rates and fees.
The study said 31 states have usury caps or other provisions that make high-interest car title loans difficult but title lenders sometimes creatively use loopholes to allow them to charge high rates anyway. The report said such creativity is not needed in Utah, where few rules restrict car title loan lenders
"We found really high interest rates in Utah. Its laws allow the loans to be flipped, or extended, at high cost. There isn't much protection on the books," Fox said.
If someone has a clear title on a car, lenders in Utah may offer loans using it as security. If borrowers default, Utah law allows the lenders to seize and sell the car to cover amounts owed in default and return the rest to the owner. Most title lenders require borrowers to provide them with a set of car keys to allow easy repossession.
State records obtained by the Morning News show 204 locations are licensed as title loan lenders. Most are also payday lenders. (Utah has 381 licensed payday loan sites.)
In visits by volunteers to eight Utah title lenders, the CFA found annual rates ranging from 25 percent to 521 percent on 30-day car title loans of up to $5,000 or more.
"It's a debt trap. You have to pay all of that back at the end of the month, and most people are not likely to be able to do that. So they buy more time, and keep paying and paying to avoid repossession of their car," Fox said.
She adds that loans pose little risk for lenders. "Because they are secured by cars that are paid off, in theory they should be more secure than loans on new cars. But the rates are far higher."
The study adds that "title loans are over-secured. Title lenders loan a fraction of the value of the car used to secure the loan."
The study also said, "Information necessary to make an informed credit decision is hard to come by" nationally with many lenders failing to quote or post rates in terms of annual interest, and also refusing to give detailed information about terms until borrowers are ready to sign contracts.
The Morning News similarly found in visits to 67 payday lenders (most of whom also offer car title loans) that 18 percent failed to post signs as required with the annual percentage rate of their loans.
The CFA study called for states such as Utah that allow high-cost title lending to "consider repealing those laws. Failing repeal, states should enact rate caps that reflect the over-secured nature of title loans and institute post-default procedures and rights to protect consumer assets."