The payday loan industry is tempting cash-strapped Ohioans with an even riskier product: auto title loans.
Consumers who cannot repay these expensive short-term loans could lose their car.
Like payday loans, auto title loans have three-digit annual percentage rates and fast payback times. Lenders make money by issuing a series of new loans to pay off old ones, which can be due in as little as two weeks to a month.
But because auto-title loans are secured by a consumer’s car, cash-strapped borrowers could find themselves without wheels if they are unable to pay, according to a Ohio Policy Issues Report which sheds light on automatic securities lending, which is relatively new in Ohio.
“Linking something like your car to one of these loans is incredibly dangerous,” said David Rothstein, author of the report released today.
Policy Matters found that auto title lenders skirted the same legal loopholes exploited by payday lenders after Ohio capped annual interest rates on short-term loans at 28% annual percentage rate, or APR.
By examining two lenders, Policy Matters found that the structure and cost of the loan varied depending on the law the companies used to issue the loans.
For example, Policy Matters found that Ace Cash Express provides two-week loans directly to consumers, placing a lien on a borrower’s car title until the loan is paid off. Ace’s loans, Policy Matters said, are made under state mortgage law and carry an effective APR of 350%.
LoanMax acts as a loan broker and is licensed as a Credit Service Organization, or CSO, another license used by payday lenders to circumvent the price caps of the United States Short-Term Loans Act. ‘State. LoanMax connects its customers to Integrity Funding Ohio LLC, a South Carolina-based lender that is licensed here under mortgage law.
Ohio’s “Keys as Collateral” report looked at a LoanMax client’s contract and found an effective APR of 371%.
Ohio voted in favor of the Short-Term Loans Act in 2008 in an effort to limit payday loans. The law, which capped APRs and gave consumers at least one month to repay a loan, was largely ignored by payday lenders.
None are currently permitted under the Short Term Lending Act. In a case involving Cashland stores, the state’s Ninth District Court of Appeals recently ruled that lenders who provide payday loans outside the short-term loan law must settle for the default of the lender. ‘State. 8% interest rate if they take legal action to recover defaulting customers.
Citing that ruling, Policy Matters Ohio urged the Ohio Department of Commerce and Attorney General’s Office to use their authority to prohibit lenders from using in issuing payday loans and auto title loans under the Credit Services Act.
He also recommended that the General Assembly create legislation expressly prohibiting the lending of automobile securities.
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