Car Title Loan Abuses to Continue in Illinois

Legislation to limit interest on car title loans failed to make it out of House committee this week, a disappointing setback that keeps Illinois in the minority of states allowing predatory lending at triple-digit rates.

HB4603 won only five votes in the 21-member Consumer Protection Committee in the Illinois General Assembly. The vote was cast after hearing testimony from a number of leaders from Illinois People’s Action (IPA). IPA has been working across the state to educate residents about the impact of car title loans and lift up the stories of families that have been impacted.

The bill, which IABG supported, has several key provisions that would protect Illinoisans, particularly those who are low-income:

• Limiting annual interest to 36%, which the Center for Responsible Lending recommends
• Requiring the loan term cannot be less than 4 months nor more than 12 months
• Prohibiting repossession of a vehicle after 100% of the principal interest has been paid
• Mandating the lender to comply with the Fair Debt Collection Practices Act
• Prohibiting the debiting of bank accounts of individuals with these loans
• Restricting loans to only vehicles with titles from another state or whose owner is not an Illinois resident

Illinois is one of only 16 states that allow car title lending outright though another four states allow it through a legal loophole.

No matter how you slice it, car title loans are horrible for consumers. These loans use a borrower’s vehicle as collateral and additionally charges triple-digit interest rates, like those of payday loans.
In Illinois, interest on these loans can reach up to 300%, meaning someone who borrowed $1,000 against the value of his or her car would pay more than $2,000 in interest alone.

In 2011, almost 100,000 car title loans with interest rates of 300% were made in Illinois. These loans are made based on the value of the borrower’s car, not his or her ability to pay the money back. Most borrowers renew their car title loan 8 times, while their required payments balloon out of reach.

While the House committee vote is stumbling block, it does not deter efforts of advocates across the state to regulate car title loans in Illinois. Enacting a 36% annual rate on these loans is actually more lenient than other states. To date, 31 states have outlawed car title loans altogether. Illinois needs to join the chorus of states that see car title loans as the predatory lending practice that they are.