Car title loans still expensive in Oregon

Oregon recently became the latest state to clamp down on expensive payday loans when the legislature passed a law limiting interest rates to 36% per year. This represented a dramatic cut in the rates charged by short term lenders, which averaged nearly 400% annually. The loans are offered by freestanding stores for two week periods of time. Borrowers who can demonstrate that they are steadily employed may write a check for amounts of several hundred dollars plus lender fees and postdate it. In two weeks, they can pay off the loan or allow the lender to cash the check. The fees, which average about $15 per $100 borrowed, represent interest rates of 391% per year. This is often regarded as predatory lending, and borrowers often find themselves taking out a second loan to repay the first one.

The legislature put a stop to that, and interest rates are now capped at 3% per month, or 36% annually. Consumer advocates hail this as a great step towards better consumer protection. Lenders have complained loudly, saying that the interest rates are necessary to as insurance against deadbeat borrowers.

What isn’t well advertised, however, is that the new law affects only payday loans, and not car title loans. Car title loans work in much the same way as payday loans, with one major exception. While a payday loan, also known as a cash advance loan, is an unsecured loan, a car title loan is secured. In exchange for the short term advance of cash, the borrower puts up the title to his or her automobile as collateral.

As with any other secured loan, if a borrower fails to pay, he or she can lose the car to repossession. In Oregon, borrowers who take out car title loans pay a fee of $25 per $100 borrowed. The amount that may be borrowed varies; the amount is dependent on the value of the car. Lenders rarely grant loans for more than a small portion of a car’s value. With a fee of $25 per month, interest rates approach 300% annually.

A borrower who cannot repay in a month’s time can “roll over” the loan for another month by paying only the interest. A borrower may roll over a loan up to six times. If he or she still has not repaid the loan, the lender may repossess the car and sell it. Once sold, the lender can claim any money owed. The remainder is returned to the borrower.

While car title loans have been relatively rare in Oregon since they were legalized in 1998, they are expected to become more common now that unsecured lending has a relatively low interest rate cap. Most payday loan stores offer both secured and unsecured financing.

It remains to be seen if legislators will attempt to amend the existing law in order to add car title loans to the interest rate restrictions. In the meantime, Oregon consumers are still permitted to take out risky financing that not only cost them a lot of money but could also cost them their vehicles. Buying a car is expensive; the last thing you want to do is lose it as collateral for cash.

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