Lots of people get into a financial bind and right away think ‘car title loans’. Then the reality of the costs begins to sink in once they start checking things out. Not to say that they aren’t good in the right situation, just not for all situations.
When you take out a car title loan you leave the title of the car as security against the loan. If you fail to pay back the borrowed money, then the company takes possession of your car. Consumers have very little protection in these matters. These types of loans are for short-term help only. They were never designed for any kind of long-term strategies. The fees are very high. Interest rates of 200% are quite common.
In the case of car title lenders in Texas, their lending laws give fairly generous regulation and fee structures. Still, many car title lenders avoid these kinds of provisions and pose as CSOs (credit services organizations). That adds an unfair advantage to their side of the equation in regard to lending. When they pose as CSOs they are able to operate outside of set rules and regulations that were meant to govern car title loans. All other lenders within the state of Texas have to follow them, however, these shrewd businessmen are exploiting a law that was intended to give protection to consumers in need of credit repair help.
This practice of avoiding the rules continued for a span of five years without resistance. Finally, the loophole had to be closed, and the playing field had to be leveled. Today, regardless of whether a cost gets classified as being ‘fees’ or ‘interest’, state laws says the cost to borrowers will be the same. This is a result of the Federal Truth in Lending Act, which requires both fees and interest be combined, and then disclosed to consumers as being an APR (Annual Percentage Rate). All credit costs must be disclosed as being APR according to Federal Law.
Existing Texas lending laws specifically permit car title loan companies to accept a borrower’s car title against loans for collateral. Also under existing Texas law, car title lenders, like all the other types of brokers and consumer lenders, are now subject to the oversight of the Texas OCCC (Office of Consumer Credit Commissioner).
While it is true that CSOs are all subject to private oversight and litigation by the Attorney General, they have been deemed as being insufficient for properly protecting consumers against abuse. The CSOs are the sole entities engaging in consumer lending and transactions of that type, who escape the compliance with, and oversight of, the requirements of the Texas OCCC. Finally the wrongs have been righted, and consumers need to do their part as well, by staying informed about the practices of the companies they deal with.