Grand Theft Auto Loans: Repossession and Demographic Realities in Title Lending

Nathalie Martin, University of New Mexico School of Law

Abstract

This Article analyzes empirical data on one America’s fastest growing credit products, the title loan. A title loan is a high-interest, deeply over-secured, consumer loan, in which the consumer uses an unencumbered auto as collateral for a non-purchase money loan. Title loans are made based solely on equity in a car. If a customer has insufficient income to pay the payments under the loan, typically interest-only payments at 300% per annum or more, the lender simply repossesses the vehicle, many of which have GPS trackers installed for this purpose. Not surprisingly, the repossession rates for title loans are far higher than regular auto repossession rates, as well as home foreclosure rates. Prior to repossession, lenders recover their principal many times over. For example, one customer we know will pay over $10,000 on her $4,000 loan. Another paid over $11,000 on a loan of $1,500. Despite these realities, title loans have garnered surprisingly little interest in the scholarly world. While legislatures around the nation struggle with how to regulate home loans, credit cards, and other middle class products, these loans go largely unnoticed and almost completely unregulated. This article reports on interesting data about who uses these loans and how often, as well as on repossession rates. It concludes that given the protections we have provided to middle class consumer credit users, we should also regulate the consumer credit products used primarily by the lower and working classes.