"Will We Never Learn?" - Meet Subprime Auto 'Title Loans': 2014's Home ATM

Tyler Durden's picture




 

The car is at the center of the biggest boom in subprime lending since the mortgage crisis, and The NY Times reports, similar to how a red-hot mortgage market once coaxed millions of borrowers into recklessly tapping the equity in their homes, the new boom is also leading people to take out risky lines of credit known as title loans. Will we never learn?!!

 

 

“Turn your car title into holiday cash,” TitleMax, a large title lender, declared in a recent television commercial, showing a Christmas stocking overflowing with money.

But as The NY Times reports, the risky lines of credit - known as title loans - are, roughly speaking, the home equity loans of subprime auto.

In these loans, which can last as long as two years or as little as a month, borrowers turn over the title of their cars in exchange for cash — typically a percentage of the cars’ estimated resale values.

 

...

 

More than 1.1 million households in the United States used auto title loans in 2013, according to a survey by the Federal Deposit Insurance Corporation — the first time the agency has included the loans in its annual survey.

 

Title loans are an increasingly prevalent form of high-cost, short-term credit in subprime finance, as regulators in a number of states crack down on payday loans.

 

For many borrowers, title loans, also sometimes known as motor-vehicle equity lines of credit or title pawns, are having ruinous financial consequences, causing owners to lose their vehicles and plunging them further into debt.

The rates are stupendous...

A review by The New York Times of more than three dozen loan agreements found that after factoring in various fees, the effective interest rates ranged from nearly 80 percent to over 500 percent. While some loans come with terms of 30 days, many borrowers, unable to pay the full loan and interest payments, say that they are forced to renew the loans at the end of each month, incurring a new round of fees.

As regulations backfire with unintended conseuqnces...

The title lenders are seizing upon a broad retrenchment among banks, which have become wary of making loans to borrowers on the fringe of the financial system. Regulations passed after the financial crisis have made it much more expensive for banks to make loans to all but the safest borrowers.

 

The title lenders are also benefiting as state authorities restrict payday loans, effectively pushing payday lenders out of many states. While title loans share many of the same features — in some cases carrying rates that eclipse those on payday loans — they have so far escaped a similar crackdown.

 

In 21 states, car title lending is expressly permitted, with title lenders charging interest of up to 300 percent a year. In most other states, lenders can make loans with cars as collateral, but at lower interest rates.

We conclude with one anecdotal example that sums it all up...

The rusting 1994 Oldsmobile sitting in a driveway just outside St. Louis was an unlikely cash machine.

 

That was until the car’s owner, a 30-year-old hospital lab technician, saw a television commercial describing how to get cash from just such a car, in the form of a short-term loan.

 

The lab technician, Caroline O’Connor, who needed about $1,000 to cover her rent and electricity bills, believed she had found a financial lifeline.

 

“It was a relief,” she said. “I did not have to beg everyone for the money.”

 

Her loan carried an annual interest rate of 171 percent. More than two years and $992.78 in debt later, her car was repossessed.

 

“These companies put people in a hole that they can’t get out of,” Ms. O’Connor said.

*  *  *

Americans need moar and will do anything for it... and as Steve Liesman says - credit is the briddge between work and play (or no work and moar play)... and is the backbone of America. What a sad joke!!

Because many lenders make the loan based on an assessment of a used car’s resale value, not on a borrower’s ability to repay that money, many people find that they are struggling to keep up almost as soon as they drive off with the cash.

 

As a result, roughly one in every six title-loan borrowers will have the car repossessed, according to an analysis of 561 title loans by the Center for Responsible Lending, a nonprofit in Durham, N.C.

 

...

 

The title lending industry, perhaps more than any other facet of subprime auto lending, thrives because of the car’s importance.

 

The threat of repossession turns the borrower into an annuity for the lenders,” said Diane Standaert, the director of state policy at the Center for Responsible Lending.

*  *  *

“It is a form of indenture,” said Robert Swearingen, a lawyer with Legal Services of Eastern Missouri, adding that “because of the threat of repossession, they can string you along for the rest of your life.”

 

“This is nothing but government-authorized loan sharking,” said Scott A. Surovell, a Virginia lawmaker who has proposed bills that would further rein in title lenders.

*  *  *

Which makes us wonder... if "everything is awesome", why are so many Americans in such desperate need for short-term cash at whatever cost? Silly question really.

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Fri, 12/26/2014 - 21:00 | 5594768 shiftless
shiftless's picture

We enslaved some folks

Fri, 12/26/2014 - 21:41 | 5594889 astroloungers
astroloungers's picture

I wonder are these loans typical consumer type, as in recourse? Will they be considered real property in non recourse states ? If the car is repo-ed, sold and there is a balance due but it is forgiven will it be a taxable event? Whats the deal on insurance....if it lapses will the lender (who will have a sweet deal with an insurance co.) tack on coverage ? Waaaaaay to complicated for an 89 oldsmobile.

Fri, 12/26/2014 - 23:31 | 5595141 seek
seek's picture

They are recourse loans, the title is signed over to the loan company, and if it's not paid, they take the vehicle.

They won't write a loan of a car that's anywhere near underwater, and many won't write a loan unless that car is paid off with a completely clear title. When it's repo'd, they make sure the sales price and fees wipe out the balance due to the person that took out the loan. The underwriters of this shit know what they're doing, and things always end up on the plus side of the balance sheet unless the person torches the car or commits suicide in a single-car accident when the loan comes due. It's second only to the Fed in the "printing money" department.

These are especially evil loans, since they target people who are very desperate for cash, carry insane interest rates, and usually take the last asset the person has, and usually one that's required for them to hold a job. Basically these loans are a harbinger of homelessness within 90 days for the person taking them out. Honestly, anyone that needs one of these loans should become homeless pre-emptively, because at least they'll still be able to live in the car, an option they won't have once they take out these loans.

Fri, 12/26/2014 - 23:55 | 5595203 Id fight Gandhi
Id fight Gandhi's picture

Indeed these are evil loans. Only people in desperate situations would take these out.

After they take it, sell it, they'll come back for collections on the rest.

Some people are stupid, but others are so desperate they'll use them.

Sat, 12/27/2014 - 09:09 | 5595832 panicearly
panicearly's picture

https://www.youtube.com/watch?v=-yWxTvffbuE

Paydayloans in UK.

not exactly desperate but then the definition of desperate needs to be agreed upon.

 

Definition from iword a :having lost hope <a desperate spirit crying for relief>b :giving no ground for hope <the outlook was desperate> 2 a :moved by despair <victims made desperate by abuse>b :involving or employing extreme measures in an attempt to escape defeat or frustration <made adesperate leap for the rope> 3 :suffering extreme need or anxiety <desperate for money> 4 :involving extreme danger or possible disaster <a desperate situation> 5 :of extreme intensity.
Sat, 12/27/2014 - 10:09 | 5595905 FEDbuster
FEDbuster's picture

More secure than student loans at ten times the rate, shylocks wet dream.

Sat, 12/27/2014 - 00:49 | 5595352 Larry Dallas
Larry Dallas's picture

The commercials I've seen for these have been catering to the especially stupid. "Go your money. Your money, your REAL money", usually a Latina giggling. Guess who they are targeting.

And I'm not sure that your car needs to be totally paid off though. Although thank goodness I've never needed one, I am pretty sure they will allow you to have at least a car loan or another title loan on one.

Sat, 12/27/2014 - 01:38 | 5595451 seek
seek's picture

It depends on the lender and how much equity (ha) is in the car. Some lenders simply don't want to bother being in second position on a title lien, and go with clean titles only. Others will underwrite if there's massive amounts of equity (think something like a 3-year old BMW with 3 months to go on a 36 month loan.)

I got exposed to one lender's operation via some business contacts that were looking for private financing, and they were seriously printing money, but also dealing with high risks (and I'm not just talking about default.) Definitely one of the darkest area of finance.

They're definitely targeting the most desperate and least educated and informed groups imaginable. I know there are some here that say screw them, but this really is outright predatory behavior, and if it's not OK for BofA/GS/et al, it's not OK for Joe's Title loans, regardless of how stupid the customers might be.

Sat, 12/27/2014 - 14:31 | 5596648 Loismustdie
Loismustdie's picture

Dirty little secret: most of these LLCs that are set up for these Title Loans and Payday lenders trace back to and are underwritten by Big banks.

Shocking, no?

Fri, 12/26/2014 - 22:41 | 5595021 lakecity55
lakecity55's picture

"I'll have 'em enslaved, er, Voting Democrat for 200 Years!"

LBJ

Fri, 12/26/2014 - 23:09 | 5595089 Buckaroo Banzai
Buckaroo Banzai's picture

If you're going to quote the man, you might as well get it right.

"I'll have these Niggers voting Democrat for the next 100 years!" -- Lyndon Baines Johnson

Fri, 12/26/2014 - 21:02 | 5594774 Silver Bullet
Silver Bullet's picture

Sounds perfect.

Let's be honest here. The economy got progressively worse from the late 70's until Lehman failed, but was papered over with ever increasing debt and falling interest rates.
Unless there is fundamental change, the best we can get back to is late 2007. This title max bullshit is just part of that.

Fri, 12/26/2014 - 21:43 | 5594906 Anusocracy
Anusocracy's picture

Let's be honest here.

An awful lot of Americans are abject morons.

Fri, 12/26/2014 - 21:55 | 5594927 BlindMonkey
BlindMonkey's picture

Dude. Did you see the commercial?? I can have a stocking stuffed with bills!!

Fri, 12/26/2014 - 23:19 | 5595116 Buckaroo Banzai
Buckaroo Banzai's picture

Ugh. New York Times?? Really, Tylers??

What makes stories like this worthless is they never talk about the hundreds of thousands of people for whom a Title loan is a temporary lifesaver. Yes the interest rates suck, but this is supposed to be a source of short-term emergency cash, not some kind of long-term lending program.

The real point is, our economy has become a bullshit centrally-planned funhouse-mirror shitshow, but you'll never hear that from the New York Times. Instead, they focus on the symptoms, never the disease. We have a media that is full of useless shitbags.

Fri, 12/26/2014 - 21:05 | 5594777 cowdiddly
cowdiddly's picture

time to start cruzin the salvage yards for some titled cars to get a loan on. lol

Fri, 12/26/2014 - 21:38 | 5594885 fzrkid
fzrkid's picture

THats what I am thinking. I wonder if they have to see the car first. Get a POS car for cheap, bring the title for a title loan and say FAHK you, come get the car. They can haul it back to the junk yard where I got it from...

 

A nurse really.. Does she not understand the idea of taking on MOAR debt to service existing debt only works for governments and Paul Krugman, though he filed for bankruptcy.

Fri, 12/26/2014 - 22:15 | 5594959 cowdiddly
cowdiddly's picture

Hey don't laugh, When I was first starting out in the cattle bus I would get in a pinch needing feed or something and would go to this small town bank and get a signature loan. The banker would always ask if I could bring him some sort of title. I had an old Junk 82 CJ7 jeep I traded for that did not even have a motor, Just a freaking body. I would bring him title to that, I was not about to give him title to one of my trucks to borrow say 2grand. I would bring him this same title every time and he would keep it in the same folder as the loan docs until I made the last pmt. When I made the last pmt he handed me the title back. Went on for years and he started getting wise as others did the same, so then he wanted to look at the vehicles.

Last loan I got on it, he wanted to look at it, so I loaded it on a trailer and brought it to the bank. Idiot new jack about car's and hated to be outside I think. He circled the jeep and ask why it was on the trailer. I told him Im taking it to the mountains sweating the whole time he would as me to start it. Without a motor, I was just going to say the battery was dead and I would be back. But he did not even ask and we went inside and I got yet another loan on that piece of crap body.

Fri, 12/26/2014 - 22:59 | 5595070 Blano
Blano's picture

Awesome story.

Fri, 12/26/2014 - 22:38 | 5595012 lakecity55
lakecity55's picture

Shhh! Me and Dusty made our Xmas money doing that!

Fri, 12/26/2014 - 21:05 | 5594778 bytebank
bytebank's picture

I guess it is bullish?
Dow 19000!

Fri, 12/26/2014 - 21:10 | 5594803 insanelysane
insanelysane's picture

This is awesome!  I'm going to get one of these loans on the 10 year old truck my kid drives and buy state lottery tickets with the cash.  Surely I will scratch a winner and make a tidy profit after paying off the loan!!!

Fri, 12/26/2014 - 21:26 | 5594846 Its_the_economy...
Its_the_economy_stupid's picture

next we'll be tapping the equity in our kids, oops, we already are

Fri, 12/26/2014 - 21:34 | 5594874 jgonzz
jgonzz's picture

I wonder if a remote kill switch is required. Behind on your payments? Your car is disabled. And of course there are "switch instalation fees" imposed.

Fri, 12/26/2014 - 21:36 | 5594879 DipshitMiddleCl...
DipshitMiddleClassWhiteKid's picture

hahaha

 

 

this is fucking hilarious

 

these loans are targeted at retards and minorities who quite frankly, fucking deserve it.

 

This right here is the reason the Jews always wind up enslaving everyone, most goyium are THAT FUCKING STUPID.

 


Fri, 12/26/2014 - 21:46 | 5594909 astroloungers
astroloungers's picture

to hard on the folk. most that work spend their time working and give little thought to money or finance. basic life financial course should be taught in high school. if it was we would be shed of the parasites in a generation.

Fri, 12/26/2014 - 22:09 | 5594952 logicalman
logicalman's picture

Why do you think 'basic life financial course' ISN'T taught in school?

It wouldn't take a generation.

Money as debt. https://www.youtube.com/watch?v=jqvKjsIxT_8

Sat, 12/27/2014 - 11:24 | 5596057 swmnguy
swmnguy's picture

Every few years there's talk of teaching basic finance in the Minneapolis Public Schools.  The teachers all think it would be a good thing to do.  The Chamber of Commerce squelched it last time.  No surprises there.  They had a spokesman exploit the smears against teachers, saying leftist Commie teachers would teach kids that consumer finance is a bad thing.  When my kids were in Middle School the teachers sneaked in a little bit of Finance.  The Math teacher would show them how to calculate a mortgage, and the difference between simple and compound interest.  That opened my kids' eyes.  A Social Studies teacher gave a very cursory overview of stocks, bonds, options, and leverage.  Not much meat to it or they'd have gotten into trouble, but enough that my son came home and asked me about it.  It didn't take long before he asked, "Dad, I know this is very serious stuff that has a lot of impact on everything we do.  But it sounds like a bunch of bullshit mostly, right?"

So that's something.

Fri, 12/26/2014 - 23:13 | 5595102 PT
PT's picture

I'd love to laugh with you but those idiots use that loan money to bid up prices so us sensible people either can't afford to buy anything (unless we act stupid) or we pay too much.  Being smart doesn't save you (unless you like having nothing).  It makes you pay too much or it makes you do without.

It's like having your crops eaten by a swarm of locusts.  You can tolerate one locust eating your crops.  And if you find that one locust you can stomp on it.  Likewise, one idiot is not going to do too much damage to YOU.  But when a SWARM of idiots pay too much for you either have to pay too much too or do without. 

The real winners are the TBTF Too-Powerful-And-Corrupt-So-They-Always-Get-Bailed-Out lenders with access to the free money.

So what can the smart people do if they don't want to pay top dollar?  They go to the repo auctions and hope they can find good stuff that hasn't been trashed.  In the case of housing, all the repo'd stock gets held off market to artificially maintain high prices.  So the next question is, what happens to all the repo'd cars?  I'm guessing they get sold overseas or sent to the crushers (as some have mentioned here already, some are only worth crushing).

I guess that at this stage the survivors will be smart people who have good friends in the repo market.  Anyone got any better ideas?

Fri, 12/26/2014 - 23:37 | 5595159 tumblemore
tumblemore's picture

Also the non-dummies get to pay for the bailouts when the banking mafia's preying on the stupid goes too far - which it always will because it's free money for them.

Sat, 12/27/2014 - 01:23 | 5595426 Your guess is a...
Your guess is as good as mine's picture

Like some cheese to go with that monstorous whine?

Sat, 12/27/2014 - 08:52 | 5595828 PT
PT's picture

Not if it comes from you.  I've only paid attention to you for 9 words and I'm already thinking it'll probably be mouldy.  But I guess you'll just call "penicillin".

Sat, 12/27/2014 - 02:47 | 5595517 Beltain
Beltain's picture

All the good vehicles are sold at dealership only auctions and then transported to all parts of the world. Most dealerships have auction buyers that spend their entire day mon-fri buying used auction cars and having them delivered or sending out van loads of drivers to go get em. The big auction houses have sales reps that travel around drumming up business from these dealerships as well.

I have picked up a lot of repoed auction cars and I can tell ya the lots at these auctions are full of old jumkers as well, eventually they get sold as scap.

 

Fri, 12/26/2014 - 23:35 | 5595152 tumblemore
tumblemore's picture

There are laws against fraudsters, counterfeiters, scammers and con artists for a good reason. Not applying those laws to the banking mafia is why *everyone* is in the current mess - not just the dummies.

Fri, 12/26/2014 - 21:36 | 5594881 KnuckleDragger-X
KnuckleDragger-X's picture

Pawn shops are rank amateurs compared to these guys....

Fri, 12/26/2014 - 21:41 | 5594887 effing idiot
effing idiot's picture

Crap, if i got $1000  loan for a '94 Olds and had it repossessed, I'd call it a sale of a lifetime. Musta been a typo.

Fri, 12/26/2014 - 22:16 | 5594965 infinity8
infinity8's picture

You ain't lyin'.

Fri, 12/26/2014 - 23:58 | 5595168 tumblemore
tumblemore's picture

That's actually the crux of the problem. The real scam is the in reality worthless sub-prime paper they con dummies into signing is then treated as having value, multiplied 100 times and used to gamble on commodities. As the feeding frenzy at the top using this multiplied value paper gets more intense the demand to create more and more of the worthless paper at the bottom increases and the banksters create a situation where it makes sense for people at the very bottom to take out loans they never even intend to pay back and the whole house of cards collapses.

 

Fri, 12/26/2014 - 21:43 | 5594902 ersatz007
ersatz007's picture

I got an offer to refinance my car loan from Wells Fargo. At least my tax payer funded bailout dollars are being used in creative ways to make even more money putting others further in debt. What a fucking crock.

Fri, 12/26/2014 - 21:45 | 5594907 B190769Sonny
B190769Sonny's picture

Com'on...there is no solution.  Let's just enjoy the remaining time that we have left before the entire burrito blows crap all over the globe.   I read these comments like people believe there is a chance of saving oursleves if we hang bankers or some politicians.  Forget it.  If those in government actually took steps to fix things....80% would bitch so loud it would be deafening.  Only Solution= Johnny Walker Blue Label.  

Fri, 12/26/2014 - 22:12 | 5594956 logicalman
logicalman's picture

Prefer single malt scotch or very old rum, myself - that's just the delivery method.

It's the ethanol that's important.

 

Fri, 12/26/2014 - 22:32 | 5594991 lakecity55
lakecity55's picture

Well, do you soak the bankers in these liquids, drown them, how does it work?

Fri, 12/26/2014 - 23:16 | 5595106 PT
PT's picture

Ethanol is flammable.  Concentrate on the ethanol.

Fri, 12/26/2014 - 23:55 | 5595202 MontgomeryScott
MontgomeryScott's picture

I, G.W.Soetoro, hereby sign the 'Cornahol and CFL Chinese Light Bulb Act' of 2008, in to law. Our partners in CAL-EPA and the House of Saud have come to the conclusion that getting the people drunk and blinded is the only solution to our problems. Methanol, Ethanol, and Cornahol are hereby deemed to be EQUALS in the World Stage of false-flag terror and boogeymen who constantly hide under our beds. Finally, banks can get back to the badly-needed business of lending, and the People can go SHOPPING, once again, in support of the GWOT.

Under this bill, I also call for enhanced penalties for those who abuse Ethanol while trying to escape this tyrrany. A National Police Force; using public-private partnerships, is already in the wings; awaiting Congressional action.

When we are successful (and we WILL be), a New Order WILL emerge, like a Thousand Points Of Light.

The "RULE OF LAW"; not the 'rule of the jungle'; will be ENFORCED, GODDAMMIT!

(Is ethanol actually flammable? Isn't that DANGEROUS?)

Mr. Secretary has directed me to state that it would be wise to outlaw the posession of ethanol and Bic lighters at the same time. Anyone caught with any type of alcohol and any type of incendiary device is to be immediately rendered into international hands (does this include CFL's? Well, if you say so...)

 

Sat, 12/27/2014 - 01:25 | 5595428 Your guess is a...
Your guess is as good as mine's picture

So much dumb, so many catch phrases, so little intelligence.

Fri, 12/26/2014 - 23:51 | 5595190 tumblemore
tumblemore's picture

sure there's a solution; it's just very, very unlikely

Fri, 12/26/2014 - 22:28 | 5594970 MontgomeryScott
MontgomeryScott's picture

Had to go in to work today, to get paid for my work (I took 4 days off in celebration of the Holiday). The T.V. in the showroom was on (I don't have television any more), and an advertisement was playing, 'starring' Montel Williams (I didn't tell you that I don't want or need or like television anymore). He was extolling the 'holiday debt issue', and the unthinkable prospect of having the power turned off because 'we' blew money on MOAR Chinese crap, and that the solution was to log on to some Loan Shark website and borrow MOAR to get the 'POWER' turned back on.

I started laughing, almost losing it. When the power's shut off, HOW, pray tell, do you log on to the INTERNET, and WHAT magic thing powers the computer? Montel FUCKING Williams...

After '07, there are lots of people living in their cars. When they can't buy gas to start the engine so that the heater works in the dead of winter, they can take out a 'subprime Title Loan' to buy gasoline. Much like they way that they took out a subprime 'Home Equity Loan' back in '06, that allowed them to give their 'blended family' brats Christmas presents made of Chinese crap...

HO LEE FUK!

The 'smart money' invested in 'TRANCHES' of 'HELOC's' back in the run-up to the Great Recession of '08.

What's the name THIS time? 'T(ea)LOC's'? 'TRANCHES' of T(ea)LOCS??? With MONTEL fucking WILLIAMS as the spokesman? I can't WAIT to hear how Mr. Yellen spins THIS one...

Everything is AWESOME...

Fri, 12/26/2014 - 22:34 | 5594971 NYPoke
NYPoke's picture

I"ve worked in the industry.  TitleMax is the WalMart of the industry.  The 2nd pic coming out of Ferguson had TitleMax in the background.

 

Our default rate was around 30%.  The loans are supposed to be short term, weeks to a few months.  They are low level Bridge Loans.  Some clients didn't want to turn over their private info to the banks.  

 

Most just couldn't get a loan.  Last resort loan.  If they couldn't get these loans, they had no other options.

 

The regulation is brutal & expensive.  The rates make it look like the company is making massive profits.  They don't, especially with TitleMax around.  We went under.  Most of the loans are pretty low dollar, not $10k+.  Most are short term.  With all the overhead, not an easy biz.

 

5+ years ago, the rates were more than double what they are now.  We did well, though not excessively well.  TitleMax killed off a lot of smaller companies & cut the rates big time.  In the end, they are the good guys for The People...until they are the only ones left & the rates go back up...way up.  Capitalism at its finest.

Fri, 12/26/2014 - 23:09 | 5595095 MontgomeryScott
MontgomeryScott's picture

'INDUSTRY' is the combined efforts by the labor of several to produce a tangible, REAL asset that is to the benefit of all (like a car, or an airplane, or a house, or a refrigerator; something which has depth and breadth and substance).

'USURY' is the lending of the 'capital' (fungible and easily-exchangible means of trade) at INTEREST (the lending of something that you hold; and that the other does NOT, with the promise of repayment at a future time; as long as an added amount is also repaid; thus making your own effort zero; and the efforts of those who are industrious to be owned by you). USURY is, in essence, voluntary (and involuntary) servitude; slavery, as it were.

Those who are involved in USURY are referred to as 'RACKETEERS'.

You are simply pissed off because another MOB ('TitleMax') moved in and took all your action. YOU were NOT in an 'INDUSTRY', and you have NO IDEA of what 'CAPITALISM' truly embraces.

FUCK.

You think that the C.I.A. is a 'COMPANY', I suppose.

You've worked in an INDUSTRY, like Obama has had a fucking JOB (in REAL LIFE. 'Community Organizer' doesn't count).

No dirt under YOUR nails, though, is there, pussy-boy? NO, REALLY, DIRT. GRIT. ICKY STUFF.

Do NOT follow this link or you will be banned from the site!