We have another guest blogger today. Marietta Jelks is the editor of the General Services Administration’s Consumer Action Handbook.   

As editor of the Consumer Action Handbook , I was sickened to hear about car title loans, a form of predatory lending, because they prey on the most vulnerable and desperate consumers. In a title loan, a consumer in need of quick cash, will use their car title as collateral for a short term loan. No job or postdated checks required. Sounds simple enough, right? Wrong.

What the title lenders don’t say in their commercials is that you have to turn over your car title and keys when you get the loan. They’ll loan you a small fraction of the car value at sky high interest rates - as much as 25% for one month (300% APR)!! At the end of the month you are expected to pay the whole amount back, plus the exorbitant interest.

If you can’t pay the loan there are only two options. You could roll the loan over for another month, with more fees and interest. This generally leads to a dangerous cycle of borrowing and rolling over the loan amount. As the loan amount increases, it becomes almost impossible to pay the debt. The other option is for the company to repossess your car. Some companies even install GPS and starter interrupters when you take out the loan to make the repossession easier. Talk about customer service!

Unfortunately, there is no federal regulation of title loans now, but some states have put some rules in place to regulate the interest charged by these companies and investigate complaints against them. If you find yourself in a cash crunch, consider all of your options. Between family, non-profit organizations,  and Extension offices, there are solutions available.

For information on other predatory lending practices:

• HUD - Predatory Lending Practices
• USA.Gov 
• St. Louis Federal Reserve Bank

Let us know if you’ve ever had an experience with a car title loan.