Sacramento – Assembly Bill 332, by Assemblymember Roger Dickinson (D-Sacramento), failed passage today in its first policy hearing in the Assembly Banking and Finance Committee. The bill was an effort to protect consumers whose economic circumstances lead them to seek loans that are both extremely expensive and are highly risky for the borrower, known as Auto or Car Title Loans. AB 332 would have instituted several consumer protections for borrowers seeking Auto Title loans.
“I am disappointed that my Assembly colleagues chose not to vote on this important consumer protection measure. The structure of auto title loans creates a severe imbalance of risk and reward between the borrower and lender, and that imbalance demands additional consumer protections such as those contained in AB 332,” said Assemblymember Dickinson. “We need to get a handle on this problem, and my hope was that AB 332 would be a significant first step,” he added.
Auto title lending is a relatively new business in which a lender makes a loan to a consumer with the loan secured by title to the borrower’s car. Consumers often choose auto title loans because they provide quick and easy access to cash and, because the loan is fully collateralized, credit ratings are not used to determine eligibility. The downside of title loans are the sky-high interest rates and the devastating repercussions of default – losing both your cash and your car, and further harming your credit history.
Under current Consumer Finance Lenders Law, loans under $2,500 have strict interest rate limits, but loans over $2,500 are unlimited in the interest rates that can be charged by lenders. The latest data from the Department of Corporations shows that in 2009 there were more than 23,000 auto loans made under the Consumer Finance Lenders Law with interest rates above 40%. Of those, 18%, or more than 4,200 had interest rates greater than 100%. Some of these loans exceed 200% APR.
Auto title lending is inherently low-risk for lenders. If a borrower makes all their payments and repays the loan without default, the lender profits. If a borrower defaults, the lender repossesses the auto, sells it, and recovers their costs.
In most instances, consumers who secure title loans that may cost somewhere between 90% and 200% annual interest rate are hard pressed for cash and often do not properly consider or understand the inherent risks associated with these kinds of transactions. They often find themselves in more difficult circumstances than they were in prior to entering a title loan transaction, facing devastating, long-term ramifications on the borrower and his or her family.
Protections under AB 332 included better lender disclosure of interest rates and risks associated with the loan, increasing the period of time during which a borrower can redeem a repossessed vehicle, and limiting the lender’s recourse in pursuing the borrower who defaults on the loan. The bill was supported by Consumers for Auto Reliability and Safety and Consumer Attorneys of California.
Contact: Taryn Kinney, (916) 319-2009
