CFPB’s Vehicle Title Loan Report Signals Future Proposed Rule

The Consumer Financial Protection Bureau (CFPB) recently released a 23-page report claiming that single-payment vehicle title loans result in vehicle repossessions for nearly one in five borrowers. While this report has been questioned, it also claims that the average annual percentage rate for such loans is approximately 300 percent. These findings are based on a CFPB study analyzing almost 3.5 million loans made to more than 400,000 borrowers in 10 states during 2010-2013. It is widely believed that the CFPB’s report is a portent of proposed regulations aimed at auto title lending, payday lending, and other small-dollar, short-term loan products.

Single-payment vehicle title loans, available in 20 states, are usually payable within 30 days, and are secured by title to the borrower’s vehicle. If the borrower fails to repay the loan, the lender can repossess and sell the vehicle. The CFPB’s study found that, in about 90 percent of cases, borrowers repay the loan, then re-borrow from the lender within 60 days of repayment. According to the CFPB, most borrowers have to take out other loans to repay the initial one, which increases fees and interest, creating what the CFPB called “an unaffordable, long-term debt load.”

Vehicle title lenders usually require that the borrower own the vehicle “free and clear,” as the vehicle’s value generally determines the amount of available funds to a borrower. Lenders generally do not check a borrower’s credit or ability to repay the loan.

On June 2, the CFPB will host a hearing on small-dollar, short-term loan products that will include testimony from consumer groups, industry representatives, and the public. The CFPB has provided some hints as to what those regulations may entail:

• Requirement that the lender check a borrower’s ability to repay by confirming credit score, income, borrowing history, and major financial obligations
• Restriction of loans to borrowers who cannot establish an ability to repay
• Presumption that a borrower cannot repay any short-term loan taken out within 60 days of a prior, outstanding short-term loan