July 19, 2017 • 55 mins
Looking for a short-term loan with extremely high interest rates plus the added worry that your vehicle will be repossessed by the lender? If so, a car title loan may be just what you’re searching for!
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Go behind the wheel, under the hood and beyond with
car Stuff from how Stuff Works dot com. I welcome
to Car Stuff. I'm Scott and I've been as always.
We are joined by our super producer, Alex the Loan Shark,
(00:23):
Alex the Loan tr Alex the Shark, the Shark, Alex
the Shark, williams uh Soap. As you know, we usually
like to pick on our producers a little bit and
assign them a nickname that is relevant to the show.
I think we pretty much let the bad ro out
of the bag there, right a little bit. Yeah, we've well,
(00:44):
fans already have read the title of the episodes, so
they know that we're talking about car title loans today.
Yes we are. We are, which sounds weird right because
previous to the research that we did for this episode
with Scott, just to be candid with you, I would
have fallen asleep. But the mention of a car title loan,
(01:07):
you know what I mean. I'm one of those guys
who I'm responsible. I'll maintain insurance, I'll do all the
the dry, snooze fast adult stuff, but I don't enjoy it.
So when I hear like car title loan, it seems
like it's time to take a nap. But it was
a very important podcast will be for several people, because
(01:31):
a lot of folks don't understand exactly what this is
or what they're green to when they do it. And
I'll also be candidate that I had no idea that
any of this was going on with these car title places.
I knew that it was kind of a shady deal
in some ways and a lot of in a lot
of cases, but um, until I really read what was
happening here with these car title loans, I just had
(01:52):
no clue as to how damaging this can be to
someone's credit, future credit, um, current credit or whatever. I'm
just it's really it's fascinating, and it has to do
with cars, of course. I mean, you're putting your car
in peril when you take one of these loans. Well,
we'll talk about the specifics of of what's really going
on with these loans, what you need to provide if
you're gonna attempt to get one of these or um. Oh,
(02:15):
Ben again, let me just start out by saying this,
we talked about this off air. Um. We're really not
in the business of giving advice to anybody, right we
have financial advice. Right. We are not the Clark Howard Show.
We are fans of The Clark Howard Show. Do check
it out, but we're not here to tell you what
you should and should not do. We will give you
(02:35):
our perspective and we will do our best to arm
you with the information that you should know. At least.
We're not doctors, but we play one on TV. Right, Right,
I've seen several medical shows. Well, I'm not a dentist either, Ben,
so I can't give you all the financial detail. Wait
a minute, I screwed that up already, haven't I. Well,
I've said, here's the thing. We're gonna be talking about
(02:55):
a lot of financial terms today. And I was not
joking around, I guess, but I'm not a anchor. I
will try to get all the terms right if I
If I screw up a little something in there, you'll
get the gist of the of the the the topic. Anyways,
I'll do my best to stay on point here. But
there's a lot of terms here that are a lot
like a foreign language to me. So any bankers out
there give me a little leeway on this one. Us
(03:17):
a little way. We'll break this down into you know
as as basic concept as we can. Let's start at
the beginning. A car title loan at least what that
phrase means if you hear it in the US and
maybe called something different in your neck of the Global Woods.
A car title loan is a type of loan, a
secured loan, where the borrowers can use the title to
(03:39):
their vehicle as collateral. So if, for instance, Scott got
some cold chips in Vegas and he needs some money quick.
Cold chips, cold chips in Vegas and he needs some
money quick, Uh, he could take the title to his
vehicle to a lending area, a place that does car
title loans, and then they would give him. Let's give
(04:02):
you some more fun than a vehicle. He takes his
Honda Odyssey. Things are going really bad. He has to
he's got he's got gambling debts. So he had to
take his Honda Odyssey. The title he was Honda Odyssey. Uh,
and now he has a certain amount of time two
make good in Vegas. Yeah. So here's the deal. It's
(04:23):
a it's a small like a short term, high rate
loan that uses the clear title in your vehicle has
to be a clear title. That's one thing that we
need to point out is that you can't still own
money in a lot of cases. You have to own
it out right, um and use that as collateral. And
then you have to give them the copy they keep it. Yeah,
you give them the Yeah, that's right. It's not just
a copy of it, and that's it. And because a
lot of people would just do that and leave town.
(04:46):
Give them a copy of the title, You give them
oftentimes a set of keys to your vehicle. They take
photographs of the vehicle. Uh, of course, fill out all
the loan application, you know, all that all the information
that they need to be able to track you down.
And a lot of times they will even install GPS
tracking devices on the vehicle so they know where it
is at all times. And some of those GPS tracking
devices will have a device that will allow them to
(05:08):
shut your vehicle down. It will allow it will allow
them it will disable the ignition. And we I think
we've talked about that in the past. I'm pretty darn
sure we have um with you know, some of these
I I guess lenders that loan to a higher risk clientele, Uh,
they will install these devices that can sometimes disable the
ignition on your vehicle and if you're not making a payment, uh,
(05:30):
they will then you know, turn off your vehicle and
it's stuck right where it is. They know where it is.
They can come pick it up and repossess it. So, Um,
before we get too far here, Ben, I think we
need to talk about, um, kind of where all this
comes from, because these places are popping up all over
the place now, so you'll fee you'll find car title
loan locations, these little tiny store fronts that appear on
(05:51):
it seems like every street corner in a busy city. Um,
even out into the suburbs, you'll find a few here
and there. And then um, you'll also find them online.
There's a lot of online lenders that will do the
exact same thing, and um, it's unfortunately it's all a
bit shady. This is a I guess this would fall
into the umbrella of predatory lending. And I think we'll
(06:11):
talk about predatory lending at some point too, because there
are other versions of well, I guess risky loans maybe
is what you can call it. Um, people that are
in need of cash now and their lenders out there
willing to give that give that to them, but at
extremely high interest rates. And this is maybe one of
the biggest eye opening things that I came across. Um,
(06:31):
and we'll just say it now, Ben, why not these
loans sometimes come with a three a p R three
hundred three digits there annual percentage. Yeah, that's an annual
percentage rate of three. Now, they will mask this in
the in the documents that they give you ahead of
time when you're filling out the forms, because they do
(06:53):
have to disclose that. And I have a note here somewhere,
you know, the uh, the rule that tells them or
that tells you. I think it's called the Federal Truth
and Lending Act. That that that makes them disclose all
of the terms and conditions of that loan. So um again,
that's the the Federal Truth and Lending Act. And boy,
they will disguise it, as I said, in a form
(07:14):
of a monthly rate that they'll tell you it's twenty
five is already high if you're borrowing money, But but
monthly what that's not I've been told you if you're not,
you're not translating that in your own head as you're thinking,
you're filling out the paperwork and you're gonna get your
thousand dollar paycheck or whatever it is. Um that that
does translate to three a p R. That's a that's
(07:36):
for the twelve months, so you know twenty five times
twelve is Yeah, it's crazy. The numbers are crazy, and
I want to be I want to be fair in
a representation here, Scott, because it is a very risky
loan for borrowers. It is also a risky loan for letters.
Yeah sure, and you know, Ben, I'm glad you said
(07:56):
it because in a in a moment, we're going to
be able to uh later, I guess the end of
the podcast, there is a guy, a lender who kind
of defends his business and tells you, you know, why
he does what he does, and he tries to make
sense of the whole thing. So we'll we'll describe that too.
But let's let's talk now a little bit about loan sharking.
And we've probably heard the turn loan sharks before, and
(08:18):
I guess this is this is a person or a
body that lends money without the correct authorization from the
Financial Conduct Authority, so uh, they're the f c A. Now,
loan sharks are illegal. I mean, that's somebody that's like
walking the street, you know, like somebody that will loan
loan you cash on the spot and is the financial
conduct authority, right, yeah, that's right. And you know this
(08:38):
could be um, you know, via organized crime whatever. You know,
we'll talk about that to it. But a lot of
times loan sharks will use um blackmail or threats of
violence to get the payment back. You know, they'll they'll
have these exorbitant um interest rates like we had talked about.
You know, I'll loan you fives now, but at the
end of the month, in thirty days, it's gonna be
you know what, you always double that, you know, me
(08:58):
a thousand at the end of the month, unless you
want to visit from any two hands, and you know,
the person says, well, that may be a risk that
I want to I want to take any two hands.
Wait a minute, I guess I'm Scott two hands, right, yeah,
you'd be Scotty two hands. Then you'd be Betty two hands.
Oh I would be okay, um, yeah, we can't both
be that. Well okay, well, uh, I would be Um.
(09:21):
I'll figure out on Mafio. So now, okay, got it.
But if you do our actual show, I'm gonna do
if it's most people. But anyways, it's it's an illegal UM.
It's an illegal practice. It's again predatory lending. It's extremely
high interest rates UM. And the same as like the
same thing with like pay day or even title you know,
the title ones that we're talking about. UM. But this
(09:41):
goes back a lot farther than a lot of people
would think. This goes way back before I guess the
criminal underworld got involved with with this predatory lending UM.
And now it's also there's I mean, if you can
call this legitimate business, I guess there's legitimate business that
doesn't today. Uh And we'll get to that too. But
back in the nineteenth century, ben there were something called
salary lenders. Now this is something because it was really
(10:04):
interesting because I I thought it was always kind of
a dirty practice. I guess you know that somebody was
really praying on a group of individuals. But there was
a time when these nineteenth century salary lenders would would
seek out customers that they felt we were good risks.
They were they were um, like a steadily employed you know,
they had a respectable job, which typically meant that they
had you know, like a regular income and a reputation
(10:26):
to protect, you know, they were They were typically people
who were married. Uh. There were people who um you know,
had a uh I guess, a name and a face
in town that people would recognize and maybe like a
sick relative or some legitimate need to borrow money. But
the point is, though, is that they were less likely
to flee town and it made them a more on
(10:47):
as far as the salary lender would would see them.
They're more of like a they had more of a
legitimate motive for borrowing. And this was not to get
to philosophical or off topic, but this was an age
in the eighteen hundreds in the US. We did not
live in an age where it was normal for people
to have massive amounts of credit card debt or massive
(11:10):
student loans, you know what I mean. Yeah, Well that's
funny because they just didn't even exist at the time.
There was There was none of that. So it's a
very different world. Yeah. Yeah. And the thing is, like
we've mentioned the type of people they were looking for.
The people that that they were not lending to were
the gamblers, the criminals, and other you know, disreputable or
unreliable types of peas. They were to be avoided in
(11:31):
all circumstances by these salary lenders. Back in the nineteenth century,
and so the further paint the context here, it was
almost impossible to get a small loan from a legal institution.
Small loans didn't make any money for the banks. Uh.
It was frowned upon and by society because you would
(11:54):
be seen as someone who couldn't manage a budget, like
you need fifty dollars for the end of the month.
Why aren't you just being responsible? You know. Uh, So
banks and the other institutions would stay away from this,
and when these small lenders came in, they filled a
(12:14):
legitimate market gap. Yeah. But uh, there was another group
that was also lending ben and this is in uh,
this is in the twentieth century. So when we get
to the twentieth century, Um, the gangsters get involved, you know,
that kind of a a new breed of a legal lender,
if you want to call it that. And they often
used violence to enforce their debts or the Actually, here's
(12:36):
the thing with this ben They would often threaten violence,
but they rarely carried it through. And the reason was,
and I found this interesting, is that they really carried
it through because if they injured the borrower, that probably
meant they couldn't go to work and they could never
pay off the debt. So, you know, it was it
was bad business to really to to hurt the clientele,
although they would threaten it, and they would come really
(12:56):
really close. They would they would make you think that
they're going to kill you or they gonna rough you
up a little. Yeah, they might, you know, you might
take a thumb off or something, but um, you know
that you're still gonna be able to do your job.
And and that was the thing. It was the fear
of the fear of what might happen if you didn't
pay them back. And that was the biggest tool that
they had or the biggest um a bit of leverage
they had against the borrower. So there's another thing here
(13:19):
that happens because they also once it became an organized
criminal enterprise, they would prey on people who were regularly
interacting with them because they became addicted to this cycle
of acquiring money and then paying back high interest rates
and then needing to borrow more. And a lot of
(13:41):
the regulars in this world, you know, came from gambling
because people who were operating illegal gambling concerns. Uh couldn't
go to the local police district and say, hey, this guy,
oh me five large, which I guess back then would
(14:03):
be five I don't know, probably five large on you know,
an illegal street fight thing. Yeah, because the chances are
the gambler himself for herself is already involved in something
illegal and would be convicted of a much more serious crime. Yeah, exactly.
That was often the case. It's not always the case,
but often the case. And you know, the funny thing
is where we're you know this is it seems like
(14:24):
we're talking about ancient history really in the way that
you know, I mean, but it but it does bring
us too close to the modern day, believe it or not.
I mean, these lun sharks have been around for a
while and they've they've been around or there's still around really, Um,
they're out there. But the thing with the title loans,
the title loans is an all new thing that doesn't
really happened since uh I think it was around the
early nineteen nineties, I believe is when title loans became
(14:46):
a thing. Um, you didn't see anything until again, probably
somewhere around there. And you know, there were always other
there were other types of risky loans out there, as
we had we had hinted at there were their pawn
shop loans, which to involve you giving things to, you know,
to a pawn shop that you own, like a television
or jewelry or computer or something like that. Yeah, and
(15:07):
the pawnshop lends you percentage of that item's value. That
the payday loan. That's another one. And that's when you're
you're saying that you know, I'm working right now, I
need I need something, you know, whatever it is, if
it's rent or if it's you know, a car repair
or whatever. Um, and I have the money, I have
the job. I'm going to get it, but I can't
get it right now. I don't have access to that money.
And somebody's willing to front you that money with it
(15:29):
on the back side, with of course, with some interest, right. Yeah.
And then they're also the wimpy Hamburger loans, or someone
loans you a hamburger or Wednesday I think it was, Yeah,
I gladly was. I'm glad they played Tuesday for Hamburger today, Right,
that's the one. Yeah, you're right, I forgot about the
wimpy Hamburger loans. It's a huge industry. I apologize for that,
(15:50):
but yeah, you're right and right, and then now we
can lump car title loans and car title loans. As
we said, we're that's a relatively new thing. And and
I think we've we've mentioned this already. But the idea
is that, um, you know, if you don't pay back
this loan, and and oftentimes these loans are relatively small
and very small. They're they're not huge loans. Typically it
might be as small as a hundred dollars. Yeah, they
(16:10):
can be really small like that. I mean ballpark. Let's
say it's five hundred bucks or even a thousand. Um,
if you don't pay back the loan in full, you oh,
you know what. I'm gonna get too far in advance
to the way these whole things, that the whole things.
But I wanted to say that, Um, the idea in
general is that you know, you borrow a fraction of
what your car is worth, pay it back with tremendous
(16:32):
amounts of interest. And if you don't pay it back
with tremendous amounts of interests in the time frame to
give you, which is a short time, Uh, then you
face you know, severe penalties in in the form of
you know, more interest added onto that loan or the
repossession of your vehicle as we talked about with those
devices that shut it down and track it, etcetera. And
it's completely legal because you signed something saying I own
(16:53):
this car and totality and here are the legal rights
to take it. Isn't that crazy? I mean, it's it's
that's the most bizarre thing. I mean there. Now, there
are some states that have changed some of the rules.
I think there's you know, a handful of states that
have tried to kind of rain these guys in. You know,
they say that you can't you can't charge people a
p R on a on a on a title loan.
(17:15):
We're gonna cap that at I think it was thirty
six is the maximum. Um. There's a few states that
have done that. There are other states that have tried
to do that. But still these these loans will go
through illegally. Um. So there are people in states that
have a cap on them, you know, interest rate for
a title loan and our car title loan, and they
(17:35):
don't realize it and they're paying that three or they're
paying monthly a p R. Well, often part of that
is because they're finding people in very vulnerable situations. You know,
can I just brief we mentioned this number a few times.
Let's say that you borrow five dollars at a p
R I'm sorry monthly. Well now APR is annual monthly
(18:00):
percentage rate. So you borrow five hundred dollars, and that's
not an uncommon number. A lot of people just need
five hundred dollars to get by. And at the end
of the month, in the thirty days, if you don't
pay back um the amount that you borrowed, the five
dollars plus the interest for that month, which is again
that's one hundred and twenty five dollars. It's six and
twenty five dollars total, so you have to pay six
(18:20):
twenty five. But let's say you get to the end
of the month and what do you know, you're in
a bad situation with the money you don't have all
six d twenty five. They will allow you to pay
the interest, just the interest on five dollars to them,
not touching the principle that yeah, like just here's the
one that we owe you for that we're gonna roll
that over to the next month. But that comes with
another monthly interest rate and it just snowballs from there
(18:44):
and you haven't even touched the principle yet. And it's
not uncommon that happens a lot where people get, you know,
eight months into this and they've paid thousands of dollars
on a five hundred or you know, maybe a thousand
dollar loan and they've never touched the principle and they
still owe more in interest. It's it's just it's it's
crazy circle of death that they get into and and
it's really really tough to get out of once you're
(19:04):
in it. So um again, it's a it's a real
tough thing. Um. They're they're not only that. Um. You know,
we talked about the interest rate, but there are also
hidden fees and sometimes there are um consequences if you
you know, don't pay on these fees as we talked about, um,
you know, well not the physical consequences, but you know
the monetary consequences and also you know, the possible again
(19:27):
repossession of your car. But we said that, you know,
there's the GPS devices that can track and locate you
in some cases disabled the vehicle if if the payment
is late. Even some things that you know, kind of
remind you to make the payment. I guess, uh, that's
a strong reminder. Um. But let's say that, um, you
default on a loan, a car tightle loan, and you
might be you might even be subject to repossession fees,
(19:50):
which can cost you know, three or fifty or four
hundred dollars in addition to paying back the outstanding balance
of the loan. That's right, They do charge you for
the repo. Yeah, they charge you for the repo. And
this is after Okay, I don't even know if we
mentioned this, Ben, there's so many angles this. I keep
getting derailed by more expenses. But when you borrow money,
they won't give you the full amount that your car
is worth. Of course, it's an over secured loan, which
(20:12):
means that when you when you borrow money, you're borrowing
typically less than fifty percent of the value of that car.
So whatever it's value, that Blue Book will give you
maybe or even at the most for that vehicle. And
that's because they know that they're you're likely to default
on that loan and they're likely to repossess that vehicle,
and that gives them enough cushion. On the other side
(20:33):
to make a profit because they can sell your vehicle outright,
then they've got the title, they've got the keys, you've
got a they've got a contract that says, if you
don't pay this back, we own it. So also gives
an incentive. I think that's important, Scott. It also gives
an incentive to the lender for the person to default, yes,
and and the the other. Yeah, that's right. It's it's
(20:54):
it's kind of problem. It's kind of pushing them in
that direction. You know. It's like it's like making them
make it harder for you to pay it back. And
a lot of that's what a lot of these things
are doing. Now. There their contracts that can conceal other
fees too. I mean, if you don't read the fine print. Uh,
there's credit insurance that you have to get, you have
to have life insurance in some cases, and there's some
things that there's even insurance that you have to pay
(21:14):
for that. Let's say, if your car breaks down, they
make you pay for insurance just to cover that and
then ben sometimes they will charge you a roadside assistance
feed when I think that's what they're talking about, the
insurance if it breaks down. But that can be even
on a five dollar loan, that can be even eighty
or a hundred dollars per month to pay for that.
So that's a significant chunk of the of the fees
(21:35):
they go into this. So these all add up to
make this this incredible, huge payment that you just can't
make it. They call this a balloon payment situation where um,
you know, you pay the interests, you pay the interests,
you pay the interest, and then at the end you
still have the uh, you know, the principal amount to
pay in one big lump sum, and a lot of
people just can't do it. It's crazy that the amount
of stuff I mean, and as you said, all of
(21:56):
this increases the likelihood that the debt or won't be
able to pay back the loan or um, you know,
maybe they'll default and they lose their vehicle completely, and
one and another thing. And a lot of states there's
a rule, and a lot of people don't know this
rule that if uh, it's not at every state, but
if they if they do repossess your vehicle and they
sell it at auction or you know, whoever they sell
(22:17):
it to, sometimes they are required to pay you back.
The difference between what they made at auction versus what
the pay what you know, was owed to them, So
they're not making all that on you know profit on
top of that as well, they're supposed to be able
to give it are supposed to be giving that money
back to you. But a lot of people don't even
know that. So the the car title loan place just
hold onto of the profit from the vehicle and you
(22:39):
lose everything. Well, the lender is certainly not going to
go out and say, hey, well, right side, if we
auction it, we have to give you the difference. You're
gonna have to find out. So we've we've touched on
a massive amount of stuff here. Uh, let's pause for
a sponsor break, and then we'll return and uh and
delve a little bit deeper. I want to end on
(23:00):
this part for this segment, though, Scott. All of the
things that we have described are wait for it, completely legal.
We'll be right back and we're back. So we raised
(23:25):
multiple uh, I would say issues, multiple issues, multiple incentives
or consequences or little financial mechanisms that make this a
bad idea for the vast majority of people. I'm I'm
gonna say that I am wondering Now, we did tease
(23:51):
that there will be somebody at the end here who
will defend this, right, give you some alternate options as well. Right,
that's what we'll do. But yeah, somebody's going to defend
ahead of that. And that's a guy that you know,
he lends, but he says, you know here, well you
know what, We'll wait to get to it, but he'll
tell you why it's maybe a valuable option for some people.
So let's begin this part of the show with some statistics.
(24:14):
According to the Pew Charitable Trust, more than two million
Americans annually use auto title loans. Just for perspective there,
I believe the current population of the United States as
we record this is about three one point four million people.
(24:34):
So three and twenty one point four million people, two
million every year are getting auto loans, and that's a
growing business. Well, they're getting titles. Auto title loans a
good call. We talked about that early. A lot of
people are getting auto loans, and these are more people
are getting auto loans, and that's fine. Yeah, that's a
completely different ball game. So the research shows that you
(24:59):
can find full report for free on the Q Trust website.
But the research shows that as Scott and I had
examined earlier. You have all the problems of payday loans
getting hooked on this cycle of of predatory interests where
you never touched the principle. But this is, uh, this
(25:23):
is dangerous in a different way because I payday loan,
you could very easily or eventually find yourself in a
situation where your paycheck arrives in the bulk of it
just becomes interest. Can I tell you something about payday
loans that I just now remembered. I may have shocked
some people with the car title loan interest rate. You
(25:44):
don't want to pay day loan can can sometimes have
an interest rate of one thousand percent, Like, how is
that legal? It's I don't know, it's possible, and I
don't think that's every case, of course, but payday loans.
Anytime you go by these places that you know offer
car title loans, payday loans, you know, whatever, paycheck advances
or whatever. All those places that have you know, the
neon signs in the window and it's just a tiny
(26:05):
little store front, looks like it's probably a phone shop.
The week before. Uh, those places can charge you a
thousand percent on a payday loan up to a thousand
person and saying yeah, and that's of course that's an
APR again. So you know, but but you never get
out of that cycle. It's like you said, you get
addicted to that feeling. It's like money now, money right
now is so addictive to a lot of people that
(26:26):
they have to do this and they get into this
cycle and without realizing what, you know, what I what
a fall, they're setting themselves up for down the road.
And it's not that far down the road. I'm talking
a couple of months down the road. And so this
also brings us to a This brings us to a
couple of things before we continue. Well, I'll save one
(26:47):
for the ends. But one historical aspect I forgot to
mention is to in order to reduce uh their appearance
as predatory lenders. Back in the nineteenth century when the
salary lenders first emerged, what they said is they said
they're not lending money. They said that they are purchasing
(27:10):
future wages at a discounted rate. Clever, very clever. That's
like that's a weasel wording way around, you know. It's
like again just a simple way to say the same thing. Yeah,
but make it sound like it's uh, it's acceptable. It
cleans it up a bit. I used to have purchasing
future wages a relative. I still have a relative who
(27:33):
taught me the real snarky thing when I was a kid.
I remember saying, I remember getting irritated about stuff and saying,
are you laughing at me? And you would stop being like,
oh no, no, I'm I'm I'm not laughing at you.
I'm laughing with myself. It's like, that's the same thing,
the same thing, but it's similar. It's just the same
(27:54):
as like when you church something up. I don't church
that up. You know. I think that's the same thing.
I think you're right. Yeah, yeah, it's just making it
sound a little bit better, like I'm purchasing future wages.
And purchasing future wages I thought you would appreciate. Can
I can I bring up a couple more stats. I
don't know where you're going before that. I don't mean
to derail us all the time on this, but let's
(28:14):
get there's so much to this and and some of
these you have to pay careful attention to really get
what's going on here. But you said there are about
two million people they get car title loans every single year. Now,
the average car title customer pays get this, two thousand
onety two dollars in interest on a nine hundred and
fifty dollar loan and renews the loan eight times. So
(28:36):
you don't remember we mentioned that the monthly rollover, that
monthly rollover is is an average of eight times per borrowers.
So you're paying interest on a loan that's less than
a thousand dollars. So you can understand where that's bad. So,
as of two thousand thirteen, about seven thousand, seven hundred
and thirty car title enders operate in twenty one states,
(28:56):
and they charge borrowers three point six billion dollars in
interest on one point six billion dollars in loans each year.
Did you hear that the the loan amount, the actual
loan that they're they're taking out is one point six billion,
but they're charging borrowers three point six billion in interest
every year. Crazy. That's insane, and that's that's from So
(29:19):
we also have numbers from twenty fifteen fifteen, as of
over eight thousand title loan stores operated in twenty five states,
so four more states and about two hundred and fifty
more locations minimum, Yet still the states differ on protections
for consumers or protections for lenders. Title loans are still
(29:45):
less common than paid a loans, and there's still probably
for larger amounts, but as Scott said, they are similar.
The typical customer is probably going to be low income
struggling to make ends meet, which makes it even more
difficult with especially with that lump sum balloon payment practice.
And so one of the reasons we have to ask ourselves, right,
(30:08):
why are these loans so expensive? While according to a
lot of research, title loans as well as payday loans
UM are expensive because the borrowers are not shopping based
on price, so the lenders don't have to lower price
to be competitive. Instead, they channel their competition into um location, availability,
(30:32):
convenience because this very neighborhood based, you know what I mean,
it's definitely a convenient thing. Uh. And so they want
to They don't want to say, well, if you already
have a loan with us, and you take a loan
another loan, you get a better deal this time around.
What they want to say is, let's put let's look
at income demographics. As ruthless as this might sound. Let's
(30:54):
look at income demographic zip code by zip code, and
let's post up somewhere there. Predatory is the right term
for this this type of loan. And again there's what
we say, there's three I think that fall under that umbrella.
It's probably more than that. But you know, the the
the payday, the pawn loan, the car title loan, these
all all the title loans, of course, will fall under
it no matter what type of title it is. If
(31:15):
you're trying to do uh to pawn a or not pawn.
But I guess I get a loan against a boat
or a motorcycle or whatever. It doesn't have to be
a car. I guess we haven't said that. It could
be any vehicle. Yeah, it could be any vehicle. So
it's just, you know, whatever is easy for them to take.
I don't think they'll take a bicycle though. I think
that would have to be a pawn loan. Yeah, I
would have to be a pond one. And you know what,
some bicycles are worth a lot of money. So I
(31:37):
would bet that, you know, a pown loan would be
a decent way to do that kind of thing. And
I don't think anybody has ever uh done A may
be wrong on this, but I don't think anybody has
done a title loan for a Tesla or Rolls Royce
or one of the various flying cars like a Terrafugia.
Who knows, you know, you know, it's funny while we're
(31:59):
talking about this, and don't know why my mind went there.
But it doesn't seem like in the nineteen seventies nineteen
eighties television shows that they were always taking items into
the pawn shop to be you know, like the wedding
ring or something like that. There's always some kind of
shenani that's going on, you know, like, um, they were
there pawning the ring to get the money to buy
some gift and they were gonna come back and pay
it back, but somebody had taken the ring, and there's
(32:21):
always something going on with a pawn shop. It seemed
like in a lot of situation comedies. It's funny that,
you know, we don't see that very often in the
modern you know, comedy era. I guess, you know, sitcoms,
things like or even even movies. Really no pawnshop as uh,
I guess, other than a couple of reality shows, you
don't see too many representations of pawnshops and popular media,
(32:45):
but they're out there. I mean, the pawn shops are
all over the players out there, I mean they're everywhere.
I've been to pawn shops before. Have you ever ever
shopped at a pawn shop? I didn't, Okay, so I
didn't shop at one because again, I'm cartoon fishually cheap,
and I knew how much people were selling things for,
(33:06):
and that information, plus knowing how much the pawn shop
was selling it for, made me think I'll just wait
and go somewhere else. Oh no, kidding, you know. I
had the opposite um experience at pawn shops in Detroit
and Detroit when I first got my new my place,
you know outside of my mom's house, you know, brand
new job whatever. You know, I had a little bit
(33:27):
of money, but not enough to buy like a nice
new TV. So I go to the pawn shop and
I look around because I had been there in the
past to buy tools and things like that, because that's
a great place to buy lawn equipment, really cheap blawn equipment.
They'll start up for you, they'll let you see that
it runs and operates and everything, and you know it's
a it's a guaranteed goodbye. I guess, you know, other
than you know, you you see what you get, I guess,
(33:47):
um and musical instruments and all that stuff. But but
I didn't have money for a TV. And it was
one of those big you know, the old yeah, the big,
heavy old TVs, right, and you could go there and
find a really, you know, relatively decent TV. There was
some terrible ones there too. There's some crap, but on
the shelf there were some good ones and you know,
less than a hundred bucks let's say, seventy five for
(34:09):
a nice, relatively big TV at the time. And uh,
and I have found nothing wrong with that. I think
I got two or three TVs like that, you know,
and and other things too, you know, like just kind
of you know, I guess you can call them toys
like motorized scooters or whatever you wanted to get. All
that stuff is there like a cursed Monkeys fall, Yeah,
like a curse Monkeys pop. Perfect. But but it has
(34:31):
its place. I think I think it has this place
for for certain things like that. I never have traded.
I had never had to trade anything in there. Thankfully,
I haven't been in that position I've been on the
other side where you go in and you get the
good deals. I understand, you know, I understand that it
definitely fills an economic niche. The first time I remember
(34:51):
going into a pawn shop, I was I was pretty young,
you know. I was exploring this strip mall think my
my mother was at the grocery store and anchored it
or something, and I wasn't very familiar with the area.
But I walked in and I thought I was in
a weird museum. Yeah, and it went from what does
(35:13):
this place sell? To what does this place not sell?
You buy a gun? Yeah, A little kid on the spot, like,
come back to the grocery. So yeah, they're like, you
know what this sixth grader needs in an attitude. So
they've got some interesting things on the shelves. You're right there.
It seems like there's a little bit of everything, and
it's it's kind of a fun place to look around.
If you've never been to a pawn shop, you're gonna
find one in your area and maybe check it out.
(35:34):
But that's the thing. When I figured out what it was,
it made me I felt conflicted. I felt bad. Yeah,
because here's the thing, you've always been shown. I well,
I guess I had been shown by television and movies
that the people were eventually gonna come back and buy
that stuff back. You know, it's kind of like they
just needed a little bit of money right now, they're
gonna come back and get their stuff back. But that's
(35:56):
not the reality. A lot of times that doesn't happen.
People like me just come in and buy the stuff
and it's gone, and I don't think people really ever
want that stuff back. And sometimes, let's be honest, sometimes
that's stolen stuff that's that's fenced through, you know, like
so you know, drop off the TV, it's you know,
the pawn shop and you get you get twenty five
bucks for it or whatever it was, and then they
mark it up. I buy it, and who's the wiser
(36:18):
you know that happens? Or you buy Oh how about this?
You buy the car stereo that has the suspiciously short
wires on the back. You know that they are all
cut at the same length. You know, there's no leads
on anything that happens too. So yeah, there's there's kind
of that angle to it. It's it's a little dirty um,
but you know it's it's it's fun. I haven't been
in one for a while. Are you're breaking your pawn happen? Well?
(36:40):
I like that you talk about reality versus perception here
because it makes me want to go back to some
of the statistics, which i'll say an advance, are a
little bit disturbing here. So, Scott, you already talked about
the annual expenditure and the profit margin. So of these
(37:01):
people who participate in this auto title loan service, between
six to eleven percent of these customers have a car
repossessed annually. One third of all the borrowers in general
don't have another working vehicle in their household. So now
(37:21):
you're now now you're double you're taking away primary transportation. Yeah,
now you're double down screwed because now there's no primary transit.
You know. I have to say, you said it was
eleven was the top end there for the repossession. That's
lower than I would expect because this loan is so dangerous,
it's such a such a risk. I would think that
(37:44):
less people would, you know, pay the full amount back
and actually maintain possession of their vehicle. I just had
a gut feeling that more cars were being sold than
or repossessed uh than than eleven percent at the maximum.
So we laid out the situation, right, yeah, yeah, okay,
I hope we have Yeah, I hope so too. And
we've we've given the lay of the land here. But
(38:05):
it naturally leads us to the next questions, which are,
how should things change? Should they change? Right? What is
the perspective of the lender in this situation? And what
is the future of auto title loans. Well, we'll take
a shot at all these. I don't know how we'll do,
but we'll give them all the old college try. After
(38:27):
a word from our sponsor, we have returned. Everybody still
have their car. Alex, You're good. He doesn't know yours? Okay,
all right? Uh minds in the shop? How yeah, I
(38:48):
was gonna say, where's yours? Minds of the minds of
the shop? I hope I don't have to take an
auto title loan to pay for my car repairs. It's
been in a long time, it's been in an hour,
it's been his. But that just means I have more
time to say and talking to explore this. So when
(39:09):
when we left for the break, we were asking about
how things could change, if so, if they should write.
Here are the five points that I see a lot
of a lot of proponents and policymakers arguing, right, they
(39:30):
want to either, first off, a lot of these folks
say they want to prohibit high cost loans altogether. Some
states have done that, or they want to issue new
regulations that are across the board that are federal right
protections for browers. Bill. Yeah, I think you could say that, yeah,
(39:52):
protections for borrowers. And one of the big protections baked
into that is that alone in Louisiana would be treated
same way as like a loan in New Hampshire or
the name a random state, Utah or Utah clearly perfect,
perfect guess um, So here here's here, just five of
(40:13):
the principles. So they want to ensure that the borrower
has an ability to repay the loan as structured in
the beginning. When I don't know if we mentioned this,
auto title loans don't do credit checks. Oh yeah, that's right.
In fact, you'll see a lot of the advertisements to
say like good credit, no credit, you know, bad credit, whatever,
you know, that doesn't matter to us, will loan you
(40:34):
the money same day, that kind of thing, you know,
get cash get cash fast all those ads. That's exactly
what they're saying, is like, we're not going to check
your credit. We haveing money to anybody that comes in
with a car title because because there's property there, we
know what's there, we know what it's worth. Another another
thing would be spreading cost evenly over the life of
the loan so that it doesn't balloon, because this would
(40:57):
be people with like limited liquid it, you know what
I mean. Uh. Then guarding against harmful repayment and collections practices,
good luck with that, requiring concise disclosures. So, as Scott
said earlier, a lot of these disclosure forms are pretty long,
and they they're long in well. Opponents of them would
(41:18):
say that they're long because they're purposefully meant to obscure
the more dangerous things about the agreement. And finally, setting
maximum allowable charges so you know, something that would sort
of limit usury. Now that plays into one thing that
I wanted to mention too, is there are some certain
(41:40):
protections that have been already installed or in place for
military consumers. So anybody who's in the military considering a
title loan should look into something called the Department of
Defense Rule. Now, that is something that states that, um,
the military a p R for car title loans, these
those that have been offered since October one to two
thousand seven with a term m of one eight one
(42:01):
days or less cannot exceed thirty six percent. So that's
a decent um a decent rate. I mean, it's still high,
but it is. It's baked into this agreement, this um,
you know, this Department of Defense rule that says that
military you know consumers have been given uh you know,
well they have to be given all of the certain
(42:22):
disclosures and loan costs and you know know, the rights
as borrowers and everything. But they do have these certain
protections built in, whereas the rest of US civilians, I
guess don't don't really have the same protections built in
that that they would, so we might be um more
susceptible to these predatory practices, which to me, the idea
that there would be a special consideration for military members
(42:44):
uh is incredibly indicative of recognition at a governmental level
that this is bad business. Yeah yeah, I mean it's
nice as they're doing that, and it's great, but they're
also saying, you know, like why wouldn't they say that
for the rest of the citizens. You know, why would
why wouldn't it be allowed for everybody? Um? I don't know.
(43:06):
It's it's interesting when you when you really dig into
the states that allow and don't allow certain things, and
you wonder why. Um, you know, it's so different when
you travel, you know, across state lines. What what's what's
the difference? Really? I mean, why isn't it being UM
regulated the way other loans are regulated? Yeah, so let's
(43:26):
get some perspective here, Scott, what about the other side
of the eye. Well, listen, there's a guy that this
is from an article on bank rate dot com and
it was written in two thousand thirteen. That's where I
got the older stats from as well. But this guy,
his name is a is is Fred windchar Now Fred
is a lender, and he is attempting to defend his
(43:49):
practice and in the in the in the article here, um,
he says that you know he's what he First of all,
he's well aware that the industry has a reputation as
a source of predatory lending. And this guy is the
president of an Illinois based company called quad W International,
or at least he was UM and a place called
max cash title loans, Max cash title ons. Okay, funny name.
(44:12):
Um he blames here's what here's where he blames the
whole downturn on. He says, he blames the mom and
pop lenders with questionable business practices for giving the industry
a black eye early on. So he's saying that, you know,
there are some bad eggs in this in this bunch,
and he says, because they're so bad, uh, they become
you know, the thing to look at instead of all
(44:32):
the good guys who are doing the good things. So
he's saying that there's some legitimate business owners out there
that are doing the right thing. They're they're not charging
these exorbitant rates and extra fees and trying to complicate
things in order to get the repossessed vehicles, that type
of thing. But but that's what happened about three decades ago,
and the industry has become full of businesses like that,
(44:54):
you know, trying to repossess people's cars, trying to make
things more complicated, trying to um never get you know,
never allow somebody out of this cycle of debt that
they're in, and you know, creating these enormous interest rates
and amortized loans. All this is it's just a big
complicated mess that it's gotten into. He says, although unethical
car title lenders still exist, their numbers are shrinking. So
(45:17):
even now, like he's saying, you know, but we we
said that the number of these businesses has gone up
in the last couple of years, and you know, the
number of loans that people that are taking out loans
are going up. So it's it's getting um more crowded,
I guess, in this in this industry, this car title industry.
But he does say that, um, when you talk about
(45:37):
the industry being predatory, he he does agree, and he
says at one point it was really predatory. Now he
calls it competitive. It's competitive industry. Um. And he also
says that his industry fills a need for consumers who
have tried to obtain traditional loans only to be rejected.
So the idea here, and this is something that goes
right back to what we said at the very beginning.
It's it's again, it's it's predatory. In the way that
(46:00):
he's even saying this, he's just saying it in in a
different way. He's churched it up a little bit, right,
he said that, Um, he's filling a need for consumers
who have tried to obtain traditional loans only to be rejected.
These are people that can't get it alone because of
you know, bad credit, no credit, Um, you know past history. Uh,
they've had you know, title loans in the past that
they've defaulted on. You know. Just that's the group of
(46:22):
people that they're going after. And he's saying, yeah, we'll
loan your money. But here the here are restrictions and
it's it's heavy penalty. And I want to add something here, Scott.
I appreciate you taking the time to present that perspective,
and I think it's a good point that not all lenders,
especially if it's state by state there's a uniform regulation. Uh,
(46:43):
not all lenders are these bad apples you hear about.
Some are legit. And of course the interest rates are high.
They're thirty six percent or you know ballpark near there,
but they're not three as they could be. You know,
they could be charging that and they're not doing that.
So there's another interesting group of statistics I have, which
is how the borrowers feel. Again, this is from UH.
(47:09):
Bars were asked overall, do you think that auto title
loans mostly help borrows like you or mostly hurt. Borrowers
like you said they mostly helped, said they mostly hurt,
And then I know that's surprising. Another question was have
auto title loan has been more a source of stress
(47:29):
and anxiety for you and your family or more something
that has relieved stress and anxiety. Fifty eight percent said
it relieved stress. Eight percent said it was a source
of stress. Wow, that's you know what these numbers are
the reverse of what I would think. Me too, Me too, buddy.
They don't add to because you know, don't know refused
(47:52):
or they do both well, you know, like the answers
they this plays into what fred Winchar said. You know,
as we just quoted Um, he's saying that he's, he's
his industry fills the need for consumers who've tried to
obtain traditional loans only to be rejected. So clearly that's
the people that we're talking about there. It's like this
is a form of relief for them because they had
no other option. And and but I'll tell you though,
(48:14):
if you're if you're out there listening to this, and
we've you know, I think we've painted a pretty dark
picture of what a car title loane is. And I
again had no idea all this was happening right under
my nose around the corner here in Atlanta, you know,
or wherever, um, you know, at all these car title places.
I didn't know it was quite this bad. Um. But
there are some things that consumer advocates will say, um,
(48:34):
you should do instead of maybe taking a car title loan,
you know, other ways around it. I guess you know,
alternative options, you know, I want to talk about a few,
and maybe we can wrap it up with this, maybe
final thoughts or something that's um. So, consumer advocates will
say that conventional loans are always going to be the
ideal scenario. But if you can't do that, if you're
shut out of the conventional loan market, there are other
(48:55):
options and and one of those And this is so
simple when you really think about this. You know, we
said title loans have only been around since about somewhere
around there, you know, late eighties, early nineties. Just think
about what people did or thirty years ago before any
of these products existed, and just do that. I mean,
just you know, because before this you didn't have that option.
(49:17):
You had to find a way around it. And if
you were shot out of the bank. There are other
ways to do things. So here's a couple of things
you can do. And I don't recommend a couple of these.
Some of these are terrible options, but I won't tell
you which ones I think are bad, and you know
versus good. But okay, here's a few possibilities if you
want to think of it this way. You can go
to your employer and ask for a paycheck advance. What
(49:37):
do you think of that? I know, I mean that's
maybe if you maybe if you work for a family
owned company, but I think for a lot of corporations
that's not gonna fly. Yeah, I think you're right. You
can also talk to your family or friends about a
personal loan. Okay, that's always an option. People have done
that since the beginning of time. I think that's always
(50:00):
if he for both you know, both sides a lot
of times. You know what, maybe that's another Clark Howard
Show issue. You can you can probably find a lot
of information on his site about that um or how
he feels about a loan, a family loan. UM. Here's
another thing that a lot of people don't realize. Religious
institutions and community groups often are able to offer financial
help to people that, um, you know, they don't often
(50:21):
advertise this that they but they do have funds available
for people that in their community that are, you know,
having trouble, having some some financial problems. They won't have
a lot, but a lot of times they can give
you a small loan to get you by. And and
that's kind of well, I mean it makes sense a
religious institution or you know, community group that someone who's
there to better their community, UM in you know different ways.
(50:43):
You know, whether it's uh, you know, um, civic duties
are you know, spiritually or whatever this is uh, this
is something that you know, they would be oftentimes happy
to help you out with. And a lot of people
don't think of that as an option. Now, credit unions
are a great option. Oftentimes they'll give you us even
a all dollar loan if you if you want something
like that, UM and interest rates that are really reasonable,
(51:05):
especially you know when you compare them to what we
talked about with the auto title loans, you know, they're
nowhere near that. I guarantee that. So so look into
your credit unions as an option. And of course, I
mean there's there's other you know ways around this as well.
But if you're settled with a car loan, you know,
a car title loan, the best course of action is
(51:25):
to pay it back as fast as you possibly can
um avoid all the interest that you can, you know,
by paying early. Make sure that your loan allows you
to pay back early without penalty. Um. But if you
do have one of these car title loans, um, I
hope I said car title in just a moment ago,
but it's a title loan in particular, do whatever you
have to do to pay that off immediately. Just get
(51:46):
out of it, get out from underneath it and uh.
And then try to get yourself in a position if
you can, where you can find a legal or a
loan that is much more fitting for your situation. I mean,
is just chuggling because for a second, I thought you
were gonna say, find a way find a legal or
I thought you're gonna say or different sort of illegal. No,
(52:08):
I just mean, um, you know, try to find a
legal source, you know that you can borrow from in
the future if you ever have to do that again,
something that is far less um um difficult to pay back,
some something that you won't feel like you're just you know,
the weight of the world on your shoulders and you're
trying to make that payment at the end of the month.
Because a lot of people in that position. But those
stats that you said are puzzling to me Ben there too.
(52:31):
They're just they're their opposite of what I think. So
it's actually kind of nice to hear that. You know,
it provides some relief in some way to some families,
but man, it just seems like it's it's a bad situation.
When you really read all these articles, you know, you'll
you'll find titles of of um, you know, why car
title loans are always a bad idea, our our car
(52:51):
title loans a good idea, why consumers should be weary.
Those are the headlines that you'll read. But maybe there
is a group of people out there that they do
suit And who are we to say who that that
you know works for and doesn't work for? Right, And
we want to hear from you if you have any
personal experience with this, if you are involved in the industry,
(53:13):
if you have an additional point that we missed, or
a perspective that you think your fellow listeners could benefit from.
I think we try. We tried to you know present
both sides pretty well, I think, I mean with the
lender and you know, and we're letting people know what's
really going on to just kind of the cold heart
facts of the case, I guess. And if you if
you are in a situation where you are considering something
(53:35):
like that and you have not yet done it, UM
will say in without you know your situation as your own,
we can't tell you what to do, but we do
hope this information put you in a better place to
be completely aware of the dangers involved. And again, one
week ago, I had no idea, you know, any of
(53:55):
this was happening. So it's real. It's a real eye opener,
I guess from from my point of view. Ways, and
so we hope that this episode has been illuminating at
least at least a decent listen. I feel like we're
also going to get some people writing in to tell
us about the weirdest things they ever founded a pawn shop. Oh,
I hope we do. Yeah, I'm all ears on that one,
(54:16):
or eyes, I guess because I'm reading an email. You
guys get the gist. Uh. Anyhow, so we are heading out.
This concludes our episode, but not our show. Thank you
so much for listening. You can find every single episode
Scott and I have ever done on our website car
Stuff Show dot com. You can join us on Facebook,
where Scott a regularly post all sorts of strange stuff
(54:36):
that he finds on the Internet. Strange stuff, all sorts
of fascinating it's bits of auto trivia, incredibly cool stuff,
all sorts of incredibly cool stuff from I've got been
at a headlock until he says that's until he says
it right, all sorts of incredibly cool stories, anecdotes, blast
from the past, and the bleeding edge of the future
(55:00):
of auto tech. You can find that. We're also on
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and if you have a suggestion for something we should
cover an upcoming episode, or you want to let us
know about the weirdest thing you found in a pawn shop,
or you have a perspective you'd like to add on
auto title loans, you can write to us directly. We
(55:20):
are car stuff at how stuff works dot com. For
more on this and thousands of other topics. Is that
how stuff works dot com. Let us know what you think.
Send an email to podcast that how Stuff Works dot
com mhm
Go behind the wheel, under the hood and beyond with
car Stuff from how Stuff Works dot com. I welcome
to Car Stuff. I'm Scott and I've been as always.
We are joined by our super producer, Alex the Loan Shark,
(00:23):
Alex the Loan tr Alex the Shark, the Shark, Alex
the Shark, williams uh Soap. As you know, we usually
like to pick on our producers a little bit and
assign them a nickname that is relevant to the show.
I think we pretty much let the bad ro out
of the bag there, right a little bit. Yeah, we've well,
(00:44):
fans already have read the title of the episodes, so
they know that we're talking about car title loans today.
Yes we are. We are, which sounds weird right because
previous to the research that we did for this episode
with Scott, just to be candid with you, I would
have fallen asleep. But the mention of a car title loan,
(01:07):
you know what I mean. I'm one of those guys
who I'm responsible. I'll maintain insurance, I'll do all the
the dry, snooze fast adult stuff, but I don't enjoy it.
So when I hear like car title loan, it seems
like it's time to take a nap. But it was
a very important podcast will be for several people, because
(01:31):
a lot of folks don't understand exactly what this is
or what they're green to when they do it. And
I'll also be candidate that I had no idea that
any of this was going on with these car title places.
I knew that it was kind of a shady deal
in some ways and a lot of in a lot
of cases, but um, until I really read what was
happening here with these car title loans, I just had
(01:52):
no clue as to how damaging this can be to
someone's credit, future credit, um, current credit or whatever. I'm
just it's really it's fascinating, and it has to do
with cars, of course. I mean, you're putting your car
in peril when you take one of these loans. Well,
we'll talk about the specifics of of what's really going
on with these loans, what you need to provide if
you're gonna attempt to get one of these or um. Oh,
(02:15):
Ben again, let me just start out by saying this,
we talked about this off air. Um. We're really not
in the business of giving advice to anybody, right we
have financial advice. Right. We are not the Clark Howard Show.
We are fans of The Clark Howard Show. Do check
it out, but we're not here to tell you what
you should and should not do. We will give you
(02:35):
our perspective and we will do our best to arm
you with the information that you should know. At least.
We're not doctors, but we play one on TV. Right, Right,
I've seen several medical shows. Well, I'm not a dentist either, Ben,
so I can't give you all the financial detail. Wait
a minute, I screwed that up already, haven't I. Well,
I've said, here's the thing. We're gonna be talking about
(02:55):
a lot of financial terms today. And I was not
joking around, I guess, but I'm not a anchor. I
will try to get all the terms right if I
If I screw up a little something in there, you'll
get the gist of the of the the the topic. Anyways,
I'll do my best to stay on point here. But
there's a lot of terms here that are a lot
like a foreign language to me. So any bankers out
there give me a little leeway on this one. Us
(03:17):
a little way. We'll break this down into you know
as as basic concept as we can. Let's start at
the beginning. A car title loan at least what that
phrase means if you hear it in the US and
maybe called something different in your neck of the Global Woods.
A car title loan is a type of loan, a
secured loan, where the borrowers can use the title to
(03:39):
their vehicle as collateral. So if, for instance, Scott got
some cold chips in Vegas and he needs some money quick.
Cold chips, cold chips in Vegas and he needs some
money quick, Uh, he could take the title to his
vehicle to a lending area, a place that does car
title loans, and then they would give him. Let's give
(04:02):
you some more fun than a vehicle. He takes his
Honda Odyssey. Things are going really bad. He has to
he's got he's got gambling debts. So he had to
take his Honda Odyssey. The title he was Honda Odyssey. Uh,
and now he has a certain amount of time two
make good in Vegas. Yeah. So here's the deal. It's
(04:23):
a it's a small like a short term, high rate
loan that uses the clear title in your vehicle has
to be a clear title. That's one thing that we
need to point out is that you can't still own
money in a lot of cases. You have to own
it out right, um and use that as collateral. And
then you have to give them the copy they keep it. Yeah,
you give them the Yeah, that's right. It's not just
a copy of it, and that's it. And because a
lot of people would just do that and leave town.
(04:46):
Give them a copy of the title, You give them
oftentimes a set of keys to your vehicle. They take
photographs of the vehicle. Uh, of course, fill out all
the loan application, you know, all that all the information
that they need to be able to track you down.
And a lot of times they will even install GPS
tracking devices on the vehicle so they know where it
is at all times. And some of those GPS tracking
devices will have a device that will allow them to
(05:08):
shut your vehicle down. It will allow it will allow
them it will disable the ignition. And we I think
we've talked about that in the past. I'm pretty darn
sure we have um with you know, some of these
I I guess lenders that loan to a higher risk clientele, Uh,
they will install these devices that can sometimes disable the
ignition on your vehicle and if you're not making a payment, uh,
(05:30):
they will then you know, turn off your vehicle and
it's stuck right where it is. They know where it is.
They can come pick it up and repossess it. So, Um,
before we get too far here, Ben, I think we
need to talk about, um, kind of where all this
comes from, because these places are popping up all over
the place now, so you'll fee you'll find car title
loan locations, these little tiny store fronts that appear on
(05:51):
it seems like every street corner in a busy city. Um,
even out into the suburbs, you'll find a few here
and there. And then um, you'll also find them online.
There's a lot of online lenders that will do the
exact same thing, and um, it's unfortunately it's all a
bit shady. This is a I guess this would fall
into the umbrella of predatory lending. And I think we'll
(06:11):
talk about predatory lending at some point too, because there
are other versions of well, I guess risky loans maybe
is what you can call it. Um, people that are
in need of cash now and their lenders out there
willing to give that give that to them, but at
extremely high interest rates. And this is maybe one of
the biggest eye opening things that I came across. Um,
(06:31):
and we'll just say it now, Ben, why not these
loans sometimes come with a three a p R three
hundred three digits there annual percentage. Yeah, that's an annual
percentage rate of three. Now, they will mask this in
the in the documents that they give you ahead of
time when you're filling out the forms, because they do
(06:53):
have to disclose that. And I have a note here somewhere,
you know, the uh, the rule that tells them or
that tells you. I think it's called the Federal Truth
and Lending Act. That that that makes them disclose all
of the terms and conditions of that loan. So um again,
that's the the Federal Truth and Lending Act. And boy,
they will disguise it, as I said, in a form
(07:14):
of a monthly rate that they'll tell you it's twenty
five is already high if you're borrowing money, But but
monthly what that's not I've been told you if you're not,
you're not translating that in your own head as you're thinking,
you're filling out the paperwork and you're gonna get your
thousand dollar paycheck or whatever it is. Um that that
does translate to three a p R. That's a that's
(07:36):
for the twelve months, so you know twenty five times
twelve is Yeah, it's crazy. The numbers are crazy, and
I want to be I want to be fair in
a representation here, Scott, because it is a very risky
loan for borrowers. It is also a risky loan for letters.
Yeah sure, and you know, Ben, I'm glad you said
(07:56):
it because in a in a moment, we're going to
be able to uh later, I guess the end of
the podcast, there is a guy, a lender who kind
of defends his business and tells you, you know, why
he does what he does, and he tries to make
sense of the whole thing. So we'll we'll describe that too.
But let's let's talk now a little bit about loan sharking.
And we've probably heard the turn loan sharks before, and
(08:18):
I guess this is this is a person or a
body that lends money without the correct authorization from the
Financial Conduct Authority, so uh, they're the f c A. Now,
loan sharks are illegal. I mean, that's somebody that's like
walking the street, you know, like somebody that will loan
loan you cash on the spot and is the financial
conduct authority, right, yeah, that's right. And you know this
(08:38):
could be um, you know, via organized crime whatever. You know,
we'll talk about that to it. But a lot of
times loan sharks will use um blackmail or threats of
violence to get the payment back. You know, they'll they'll
have these exorbitant um interest rates like we had talked about.
You know, I'll loan you fives now, but at the
end of the month, in thirty days, it's gonna be
you know what, you always double that, you know, me
(08:58):
a thousand at the end of the month, unless you
want to visit from any two hands, and you know,
the person says, well, that may be a risk that
I want to I want to take any two hands.
Wait a minute, I guess I'm Scott two hands, right, yeah,
you'd be Scotty two hands. Then you'd be Betty two hands.
Oh I would be okay, um, yeah, we can't both
be that. Well okay, well, uh, I would be Um.
(09:21):
I'll figure out on Mafio. So now, okay, got it.
But if you do our actual show, I'm gonna do
if it's most people. But anyways, it's it's an illegal UM.
It's an illegal practice. It's again predatory lending. It's extremely
high interest rates UM. And the same as like the
same thing with like pay day or even title you know,
the title ones that we're talking about. UM. But this
(09:41):
goes back a lot farther than a lot of people
would think. This goes way back before I guess the
criminal underworld got involved with with this predatory lending UM.
And now it's also there's I mean, if you can
call this legitimate business, I guess there's legitimate business that
doesn't today. Uh And we'll get to that too. But
back in the nineteenth century, ben there were something called
salary lenders. Now this is something because it was really
(10:04):
interesting because I I thought it was always kind of
a dirty practice. I guess you know that somebody was
really praying on a group of individuals. But there was
a time when these nineteenth century salary lenders would would
seek out customers that they felt we were good risks.
They were they were um, like a steadily employed you know,
they had a respectable job, which typically meant that they
had you know, like a regular income and a reputation
(10:26):
to protect, you know, they were They were typically people
who were married. Uh. There were people who um you know,
had a uh I guess, a name and a face
in town that people would recognize and maybe like a
sick relative or some legitimate need to borrow money. But
the point is, though, is that they were less likely
to flee town and it made them a more on
(10:47):
as far as the salary lender would would see them.
They're more of like a they had more of a
legitimate motive for borrowing. And this was not to get
to philosophical or off topic, but this was an age
in the eighteen hundreds in the US. We did not
live in an age where it was normal for people
to have massive amounts of credit card debt or massive
(11:10):
student loans, you know what I mean. Yeah, Well that's
funny because they just didn't even exist at the time.
There was There was none of that. So it's a
very different world. Yeah. Yeah. And the thing is, like
we've mentioned the type of people they were looking for.
The people that that they were not lending to were
the gamblers, the criminals, and other you know, disreputable or
unreliable types of peas. They were to be avoided in
(11:31):
all circumstances by these salary lenders. Back in the nineteenth century,
and so the further paint the context here, it was
almost impossible to get a small loan from a legal institution.
Small loans didn't make any money for the banks. Uh.
It was frowned upon and by society because you would
(11:54):
be seen as someone who couldn't manage a budget, like
you need fifty dollars for the end of the month.
Why aren't you just being responsible? You know. Uh, So
banks and the other institutions would stay away from this,
and when these small lenders came in, they filled a
(12:14):
legitimate market gap. Yeah. But uh, there was another group
that was also lending ben and this is in uh,
this is in the twentieth century. So when we get
to the twentieth century, Um, the gangsters get involved, you know,
that kind of a a new breed of a legal lender,
if you want to call it that. And they often
used violence to enforce their debts or the Actually, here's
(12:36):
the thing with this ben They would often threaten violence,
but they rarely carried it through. And the reason was,
and I found this interesting, is that they really carried
it through because if they injured the borrower, that probably
meant they couldn't go to work and they could never
pay off the debt. So, you know, it was it
was bad business to really to to hurt the clientele,
although they would threaten it, and they would come really
(12:56):
really close. They would they would make you think that
they're going to kill you or they gonna rough you
up a little. Yeah, they might, you know, you might
take a thumb off or something, but um, you know
that you're still gonna be able to do your job.
And and that was the thing. It was the fear
of the fear of what might happen if you didn't
pay them back. And that was the biggest tool that
they had or the biggest um a bit of leverage
they had against the borrower. So there's another thing here
(13:19):
that happens because they also once it became an organized
criminal enterprise, they would prey on people who were regularly
interacting with them because they became addicted to this cycle
of acquiring money and then paying back high interest rates
and then needing to borrow more. And a lot of
(13:41):
the regulars in this world, you know, came from gambling
because people who were operating illegal gambling concerns. Uh couldn't
go to the local police district and say, hey, this guy,
oh me five large, which I guess back then would
(14:03):
be five I don't know, probably five large on you know,
an illegal street fight thing. Yeah, because the chances are
the gambler himself for herself is already involved in something
illegal and would be convicted of a much more serious crime. Yeah, exactly.
That was often the case. It's not always the case,
but often the case. And you know, the funny thing
is where we're you know this is it seems like
(14:24):
we're talking about ancient history really in the way that
you know, I mean, but it but it does bring
us too close to the modern day, believe it or not.
I mean, these lun sharks have been around for a
while and they've they've been around or there's still around really, Um,
they're out there. But the thing with the title loans,
the title loans is an all new thing that doesn't
really happened since uh I think it was around the
early nineteen nineties, I believe is when title loans became
(14:46):
a thing. Um, you didn't see anything until again, probably
somewhere around there. And you know, there were always other
there were other types of risky loans out there, as
we had we had hinted at there were their pawn
shop loans, which to involve you giving things to, you know,
to a pawn shop that you own, like a television
or jewelry or computer or something like that. Yeah, and
(15:07):
the pawnshop lends you percentage of that item's value. That
the payday loan. That's another one. And that's when you're
you're saying that you know, I'm working right now, I
need I need something, you know, whatever it is, if
it's rent or if it's you know, a car repair
or whatever. Um, and I have the money, I have
the job. I'm going to get it, but I can't
get it right now. I don't have access to that money.
And somebody's willing to front you that money with it
(15:29):
on the back side, with of course, with some interest, right. Yeah.
And then they're also the wimpy Hamburger loans, or someone
loans you a hamburger or Wednesday I think it was, Yeah,
I gladly was. I'm glad they played Tuesday for Hamburger today, Right,
that's the one. Yeah, you're right, I forgot about the
wimpy Hamburger loans. It's a huge industry. I apologize for that,
(15:50):
but yeah, you're right and right, and then now we
can lump car title loans and car title loans. As
we said, we're that's a relatively new thing. And and
I think we've we've mentioned this already. But the idea
is that, um, you know, if you don't pay back
this loan, and and oftentimes these loans are relatively small
and very small. They're they're not huge loans. Typically it
might be as small as a hundred dollars. Yeah, they
(16:10):
can be really small like that. I mean ballpark. Let's
say it's five hundred bucks or even a thousand. Um,
if you don't pay back the loan in full, you oh,
you know what. I'm gonna get too far in advance
to the way these whole things, that the whole things.
But I wanted to say that, Um, the idea in
general is that you know, you borrow a fraction of
what your car is worth, pay it back with tremendous
(16:32):
amounts of interest. And if you don't pay it back
with tremendous amounts of interests in the time frame to
give you, which is a short time, Uh, then you
face you know, severe penalties in in the form of
you know, more interest added onto that loan or the
repossession of your vehicle as we talked about with those
devices that shut it down and track it, etcetera. And
it's completely legal because you signed something saying I own
(16:53):
this car and totality and here are the legal rights
to take it. Isn't that crazy? I mean, it's it's
that's the most bizarre thing. I mean there. Now, there
are some states that have changed some of the rules.
I think there's you know, a handful of states that
have tried to kind of rain these guys in. You know,
they say that you can't you can't charge people a
p R on a on a on a title loan.
(17:15):
We're gonna cap that at I think it was thirty
six is the maximum. Um. There's a few states that
have done that. There are other states that have tried
to do that. But still these these loans will go
through illegally. Um. So there are people in states that
have a cap on them, you know, interest rate for
a title loan and our car title loan, and they
(17:35):
don't realize it and they're paying that three or they're
paying monthly a p R. Well, often part of that
is because they're finding people in very vulnerable situations. You know,
can I just brief we mentioned this number a few times.
Let's say that you borrow five dollars at a p
R I'm sorry monthly. Well now APR is annual monthly
(18:00):
percentage rate. So you borrow five hundred dollars, and that's
not an uncommon number. A lot of people just need
five hundred dollars to get by. And at the end
of the month, in the thirty days, if you don't
pay back um the amount that you borrowed, the five
dollars plus the interest for that month, which is again
that's one hundred and twenty five dollars. It's six and
twenty five dollars total, so you have to pay six
(18:20):
twenty five. But let's say you get to the end
of the month and what do you know, you're in
a bad situation with the money you don't have all
six d twenty five. They will allow you to pay
the interest, just the interest on five dollars to them,
not touching the principle that yeah, like just here's the
one that we owe you for that we're gonna roll
that over to the next month. But that comes with
another monthly interest rate and it just snowballs from there
(18:44):
and you haven't even touched the principle yet. And it's
not uncommon that happens a lot where people get, you know,
eight months into this and they've paid thousands of dollars
on a five hundred or you know, maybe a thousand
dollar loan and they've never touched the principle and they
still owe more in interest. It's it's just it's it's
crazy circle of death that they get into and and
it's really really tough to get out of once you're
(19:04):
in it. So um again, it's a it's a real
tough thing. Um. They're they're not only that. Um. You know,
we talked about the interest rate, but there are also
hidden fees and sometimes there are um consequences if you
you know, don't pay on these fees as we talked about, um,
you know, well not the physical consequences, but you know
the monetary consequences and also you know, the possible again
(19:27):
repossession of your car. But we said that, you know,
there's the GPS devices that can track and locate you
in some cases disabled the vehicle if if the payment
is late. Even some things that you know, kind of
remind you to make the payment. I guess, uh, that's
a strong reminder. Um. But let's say that, um, you
default on a loan, a car tightle loan, and you
might be you might even be subject to repossession fees,
(19:50):
which can cost you know, three or fifty or four
hundred dollars in addition to paying back the outstanding balance
of the loan. That's right, They do charge you for
the repo. Yeah, they charge you for the repo. And
this is after Okay, I don't even know if we
mentioned this, Ben, there's so many angles this. I keep
getting derailed by more expenses. But when you borrow money,
they won't give you the full amount that your car
is worth. Of course, it's an over secured loan, which
(20:12):
means that when you when you borrow money, you're borrowing
typically less than fifty percent of the value of that car.
So whatever it's value, that Blue Book will give you
maybe or even at the most for that vehicle. And
that's because they know that they're you're likely to default
on that loan and they're likely to repossess that vehicle,
and that gives them enough cushion. On the other side
(20:33):
to make a profit because they can sell your vehicle outright,
then they've got the title, they've got the keys, you've
got a they've got a contract that says, if you
don't pay this back, we own it. So also gives
an incentive. I think that's important, Scott. It also gives
an incentive to the lender for the person to default, yes,
and and the the other. Yeah, that's right. It's it's
(20:54):
it's kind of problem. It's kind of pushing them in
that direction. You know. It's like it's like making them
make it harder for you to pay it back. And
a lot of that's what a lot of these things
are doing. Now. There their contracts that can conceal other
fees too. I mean, if you don't read the fine print. Uh,
there's credit insurance that you have to get, you have
to have life insurance in some cases, and there's some
things that there's even insurance that you have to pay
(21:14):
for that. Let's say, if your car breaks down, they
make you pay for insurance just to cover that and
then ben sometimes they will charge you a roadside assistance
feed when I think that's what they're talking about, the
insurance if it breaks down. But that can be even
on a five dollar loan, that can be even eighty
or a hundred dollars per month to pay for that.
So that's a significant chunk of the of the fees
(21:35):
they go into this. So these all add up to
make this this incredible, huge payment that you just can't
make it. They call this a balloon payment situation where um,
you know, you pay the interests, you pay the interests,
you pay the interest, and then at the end you
still have the uh, you know, the principal amount to
pay in one big lump sum, and a lot of
people just can't do it. It's crazy that the amount
of stuff I mean, and as you said, all of
(21:56):
this increases the likelihood that the debt or won't be
able to pay back the loan or um, you know,
maybe they'll default and they lose their vehicle completely, and
one and another thing. And a lot of states there's
a rule, and a lot of people don't know this
rule that if uh, it's not at every state, but
if they if they do repossess your vehicle and they
sell it at auction or you know, whoever they sell
(22:17):
it to, sometimes they are required to pay you back.
The difference between what they made at auction versus what
the pay what you know, was owed to them, So
they're not making all that on you know profit on
top of that as well, they're supposed to be able
to give it are supposed to be giving that money
back to you. But a lot of people don't even
know that. So the the car title loan place just
hold onto of the profit from the vehicle and you
(22:39):
lose everything. Well, the lender is certainly not going to
go out and say, hey, well, right side, if we
auction it, we have to give you the difference. You're
gonna have to find out. So we've we've touched on
a massive amount of stuff here. Uh, let's pause for
a sponsor break, and then we'll return and uh and
delve a little bit deeper. I want to end on
(23:00):
this part for this segment, though, Scott. All of the
things that we have described are wait for it, completely legal.
We'll be right back and we're back. So we raised
(23:25):
multiple uh, I would say issues, multiple issues, multiple incentives
or consequences or little financial mechanisms that make this a
bad idea for the vast majority of people. I'm I'm
gonna say that I am wondering Now, we did tease
(23:51):
that there will be somebody at the end here who
will defend this, right, give you some alternate options as well. Right,
that's what we'll do. But yeah, somebody's going to defend
ahead of that. And that's a guy that you know,
he lends, but he says, you know here, well you
know what, We'll wait to get to it, but he'll
tell you why it's maybe a valuable option for some people.
So let's begin this part of the show with some statistics.
(24:14):
According to the Pew Charitable Trust, more than two million
Americans annually use auto title loans. Just for perspective there,
I believe the current population of the United States as
we record this is about three one point four million people.
(24:34):
So three and twenty one point four million people, two
million every year are getting auto loans, and that's a
growing business. Well, they're getting titles. Auto title loans a
good call. We talked about that early. A lot of
people are getting auto loans, and these are more people
are getting auto loans, and that's fine. Yeah, that's a
completely different ball game. So the research shows that you
(24:59):
can find full report for free on the Q Trust website.
But the research shows that as Scott and I had
examined earlier. You have all the problems of payday loans
getting hooked on this cycle of of predatory interests where
you never touched the principle. But this is, uh, this
(25:23):
is dangerous in a different way because I payday loan,
you could very easily or eventually find yourself in a
situation where your paycheck arrives in the bulk of it
just becomes interest. Can I tell you something about payday
loans that I just now remembered. I may have shocked
some people with the car title loan interest rate. You
(25:44):
don't want to pay day loan can can sometimes have
an interest rate of one thousand percent, Like, how is
that legal? It's I don't know, it's possible, and I
don't think that's every case, of course, but payday loans.
Anytime you go by these places that you know offer
car title loans, payday loans, you know, whatever, paycheck advances
or whatever. All those places that have you know, the
neon signs in the window and it's just a tiny
(26:05):
little store front, looks like it's probably a phone shop.
The week before. Uh, those places can charge you a
thousand percent on a payday loan up to a thousand
person and saying yeah, and that's of course that's an
APR again. So you know, but but you never get
out of that cycle. It's like you said, you get
addicted to that feeling. It's like money now, money right
now is so addictive to a lot of people that
(26:26):
they have to do this and they get into this
cycle and without realizing what, you know, what I what
a fall, they're setting themselves up for down the road.
And it's not that far down the road. I'm talking
a couple of months down the road. And so this
also brings us to a This brings us to a
couple of things before we continue. Well, I'll save one
(26:47):
for the ends. But one historical aspect I forgot to
mention is to in order to reduce uh their appearance
as predatory lenders. Back in the nineteenth century when the
salary lenders first emerged, what they said is they said
they're not lending money. They said that they are purchasing
(27:10):
future wages at a discounted rate. Clever, very clever. That's
like that's a weasel wording way around, you know. It's
like again just a simple way to say the same thing. Yeah,
but make it sound like it's uh, it's acceptable. It
cleans it up a bit. I used to have purchasing
future wages a relative. I still have a relative who
(27:33):
taught me the real snarky thing when I was a kid.
I remember saying, I remember getting irritated about stuff and saying,
are you laughing at me? And you would stop being like,
oh no, no, I'm I'm I'm not laughing at you.
I'm laughing with myself. It's like, that's the same thing,
the same thing, but it's similar. It's just the same
(27:54):
as like when you church something up. I don't church
that up. You know. I think that's the same thing.
I think you're right. Yeah, yeah, it's just making it
sound a little bit better, like I'm purchasing future wages.
And purchasing future wages I thought you would appreciate. Can
I can I bring up a couple more stats. I
don't know where you're going before that. I don't mean
to derail us all the time on this, but let's
(28:14):
get there's so much to this and and some of
these you have to pay careful attention to really get
what's going on here. But you said there are about
two million people they get car title loans every single year. Now,
the average car title customer pays get this, two thousand
onety two dollars in interest on a nine hundred and
fifty dollar loan and renews the loan eight times. So
(28:36):
you don't remember we mentioned that the monthly rollover, that
monthly rollover is is an average of eight times per borrowers.
So you're paying interest on a loan that's less than
a thousand dollars. So you can understand where that's bad. So,
as of two thousand thirteen, about seven thousand, seven hundred
and thirty car title enders operate in twenty one states,
(28:56):
and they charge borrowers three point six billion dollars in
interest on one point six billion dollars in loans each year.
Did you hear that the the loan amount, the actual
loan that they're they're taking out is one point six billion,
but they're charging borrowers three point six billion in interest
every year. Crazy. That's insane, and that's that's from So
(29:19):
we also have numbers from twenty fifteen fifteen, as of
over eight thousand title loan stores operated in twenty five states,
so four more states and about two hundred and fifty
more locations minimum, Yet still the states differ on protections
for consumers or protections for lenders. Title loans are still
(29:45):
less common than paid a loans, and there's still probably
for larger amounts, but as Scott said, they are similar.
The typical customer is probably going to be low income
struggling to make ends meet, which makes it even more
difficult with especially with that lump sum balloon payment practice.
And so one of the reasons we have to ask ourselves, right,
(30:08):
why are these loans so expensive? While according to a
lot of research, title loans as well as payday loans
UM are expensive because the borrowers are not shopping based
on price, so the lenders don't have to lower price
to be competitive. Instead, they channel their competition into um location, availability,
(30:32):
convenience because this very neighborhood based, you know what I mean,
it's definitely a convenient thing. Uh. And so they want
to They don't want to say, well, if you already
have a loan with us, and you take a loan
another loan, you get a better deal this time around.
What they want to say is, let's put let's look
at income demographics. As ruthless as this might sound. Let's
(30:54):
look at income demographic zip code by zip code, and
let's post up somewhere there. Predatory is the right term
for this this type of loan. And again there's what
we say, there's three I think that fall under that umbrella.
It's probably more than that. But you know, the the
the payday, the pawn loan, the car title loan, these
all all the title loans, of course, will fall under
it no matter what type of title it is. If
(31:15):
you're trying to do uh to pawn a or not pawn.
But I guess I get a loan against a boat
or a motorcycle or whatever. It doesn't have to be
a car. I guess we haven't said that. It could
be any vehicle. Yeah, it could be any vehicle. So
it's just, you know, whatever is easy for them to take.
I don't think they'll take a bicycle though. I think
that would have to be a pawn loan. Yeah, I
would have to be a pond one. And you know what,
some bicycles are worth a lot of money. So I
(31:37):
would bet that, you know, a pown loan would be
a decent way to do that kind of thing. And
I don't think anybody has ever uh done A may
be wrong on this, but I don't think anybody has
done a title loan for a Tesla or Rolls Royce
or one of the various flying cars like a Terrafugia.
Who knows, you know, you know, it's funny while we're
(31:59):
talking about this, and don't know why my mind went there.
But it doesn't seem like in the nineteen seventies nineteen
eighties television shows that they were always taking items into
the pawn shop to be you know, like the wedding
ring or something like that. There's always some kind of
shenani that's going on, you know, like, um, they were
there pawning the ring to get the money to buy
some gift and they were gonna come back and pay
it back, but somebody had taken the ring, and there's
(32:21):
always something going on with a pawn shop. It seemed
like in a lot of situation comedies. It's funny that,
you know, we don't see that very often in the
modern you know, comedy era. I guess, you know, sitcoms,
things like or even even movies. Really no pawnshop as uh,
I guess, other than a couple of reality shows, you
don't see too many representations of pawnshops and popular media,
(32:45):
but they're out there. I mean, the pawn shops are
all over the players out there, I mean they're everywhere.
I've been to pawn shops before. Have you ever ever
shopped at a pawn shop? I didn't, Okay, so I
didn't shop at one because again, I'm cartoon fishually cheap,
and I knew how much people were selling things for,
(33:06):
and that information, plus knowing how much the pawn shop
was selling it for, made me think I'll just wait
and go somewhere else. Oh no, kidding, you know. I
had the opposite um experience at pawn shops in Detroit
and Detroit when I first got my new my place,
you know outside of my mom's house, you know, brand
new job whatever. You know, I had a little bit
(33:27):
of money, but not enough to buy like a nice
new TV. So I go to the pawn shop and
I look around because I had been there in the
past to buy tools and things like that, because that's
a great place to buy lawn equipment, really cheap blawn equipment.
They'll start up for you, they'll let you see that
it runs and operates and everything, and you know it's
a it's a guaranteed goodbye. I guess, you know, other
than you know, you you see what you get, I guess,
(33:47):
um and musical instruments and all that stuff. But but
I didn't have money for a TV. And it was
one of those big you know, the old yeah, the big,
heavy old TVs, right, and you could go there and
find a really, you know, relatively decent TV. There was
some terrible ones there too. There's some crap, but on
the shelf there were some good ones and you know,
less than a hundred bucks let's say, seventy five for
(34:09):
a nice, relatively big TV at the time. And uh,
and I have found nothing wrong with that. I think
I got two or three TVs like that, you know,
and and other things too, you know, like just kind
of you know, I guess you can call them toys
like motorized scooters or whatever you wanted to get. All
that stuff is there like a cursed Monkeys fall, Yeah,
like a curse Monkeys pop. Perfect. But but it has
(34:31):
its place. I think I think it has this place
for for certain things like that. I never have traded.
I had never had to trade anything in there. Thankfully,
I haven't been in that position I've been on the
other side where you go in and you get the
good deals. I understand, you know, I understand that it
definitely fills an economic niche. The first time I remember
(34:51):
going into a pawn shop, I was I was pretty young,
you know. I was exploring this strip mall think my
my mother was at the grocery store and anchored it
or something, and I wasn't very familiar with the area.
But I walked in and I thought I was in
a weird museum. Yeah, and it went from what does
(35:13):
this place sell? To what does this place not sell?
You buy a gun? Yeah, A little kid on the spot, like,
come back to the grocery. So yeah, they're like, you
know what this sixth grader needs in an attitude. So
they've got some interesting things on the shelves. You're right there.
It seems like there's a little bit of everything, and
it's it's kind of a fun place to look around.
If you've never been to a pawn shop, you're gonna
find one in your area and maybe check it out.
(35:34):
But that's the thing. When I figured out what it was,
it made me I felt conflicted. I felt bad. Yeah,
because here's the thing, you've always been shown. I well,
I guess I had been shown by television and movies
that the people were eventually gonna come back and buy
that stuff back. You know, it's kind of like they
just needed a little bit of money right now, they're
gonna come back and get their stuff back. But that's
(35:56):
not the reality. A lot of times that doesn't happen.
People like me just come in and buy the stuff
and it's gone, and I don't think people really ever
want that stuff back. And sometimes, let's be honest, sometimes
that's stolen stuff that's that's fenced through, you know, like
so you know, drop off the TV, it's you know,
the pawn shop and you get you get twenty five
bucks for it or whatever it was, and then they
mark it up. I buy it, and who's the wiser
(36:18):
you know that happens? Or you buy Oh how about this?
You buy the car stereo that has the suspiciously short
wires on the back. You know that they are all
cut at the same length. You know, there's no leads
on anything that happens too. So yeah, there's there's kind
of that angle to it. It's it's a little dirty um,
but you know it's it's it's fun. I haven't been
in one for a while. Are you're breaking your pawn happen? Well?
(36:40):
I like that you talk about reality versus perception here
because it makes me want to go back to some
of the statistics, which i'll say an advance, are a
little bit disturbing here. So, Scott, you already talked about
the annual expenditure and the profit margin. So of these
(37:01):
people who participate in this auto title loan service, between
six to eleven percent of these customers have a car
repossessed annually. One third of all the borrowers in general
don't have another working vehicle in their household. So now
(37:21):
you're now now you're double you're taking away primary transportation. Yeah,
now you're double down screwed because now there's no primary transit.
You know. I have to say, you said it was
eleven was the top end there for the repossession. That's
lower than I would expect because this loan is so dangerous,
it's such a such a risk. I would think that
(37:44):
less people would, you know, pay the full amount back
and actually maintain possession of their vehicle. I just had
a gut feeling that more cars were being sold than
or repossessed uh than than eleven percent at the maximum.
So we laid out the situation, right, yeah, yeah, okay,
I hope we have Yeah, I hope so too. And
we've we've given the lay of the land here. But
(38:05):
it naturally leads us to the next questions, which are,
how should things change? Should they change? Right? What is
the perspective of the lender in this situation? And what
is the future of auto title loans. Well, we'll take
a shot at all these. I don't know how we'll do,
but we'll give them all the old college try. After
(38:27):
a word from our sponsor, we have returned. Everybody still
have their car. Alex, You're good. He doesn't know yours? Okay,
all right? Uh minds in the shop? How yeah, I
(38:48):
was gonna say, where's yours? Minds of the minds of
the shop? I hope I don't have to take an
auto title loan to pay for my car repairs. It's
been in a long time, it's been in an hour,
it's been his. But that just means I have more
time to say and talking to explore this. So when
(39:09):
when we left for the break, we were asking about
how things could change, if so, if they should write.
Here are the five points that I see a lot
of a lot of proponents and policymakers arguing, right, they
(39:30):
want to either, first off, a lot of these folks
say they want to prohibit high cost loans altogether. Some
states have done that, or they want to issue new
regulations that are across the board that are federal right
protections for browers. Bill. Yeah, I think you could say that, yeah,
(39:52):
protections for borrowers. And one of the big protections baked
into that is that alone in Louisiana would be treated
same way as like a loan in New Hampshire or
the name a random state, Utah or Utah clearly perfect,
perfect guess um, So here here's here, just five of
(40:13):
the principles. So they want to ensure that the borrower
has an ability to repay the loan as structured in
the beginning. When I don't know if we mentioned this,
auto title loans don't do credit checks. Oh yeah, that's right.
In fact, you'll see a lot of the advertisements to
say like good credit, no credit, you know, bad credit, whatever,
you know, that doesn't matter to us, will loan you
(40:34):
the money same day, that kind of thing, you know,
get cash get cash fast all those ads. That's exactly
what they're saying, is like, we're not going to check
your credit. We haveing money to anybody that comes in
with a car title because because there's property there, we
know what's there, we know what it's worth. Another another
thing would be spreading cost evenly over the life of
the loan so that it doesn't balloon, because this would
(40:57):
be people with like limited liquid it, you know what
I mean. Uh. Then guarding against harmful repayment and collections practices,
good luck with that, requiring concise disclosures. So, as Scott
said earlier, a lot of these disclosure forms are pretty long,
and they they're long in well. Opponents of them would
(41:18):
say that they're long because they're purposefully meant to obscure
the more dangerous things about the agreement. And finally, setting
maximum allowable charges so you know, something that would sort
of limit usury. Now that plays into one thing that
I wanted to mention too, is there are some certain
(41:40):
protections that have been already installed or in place for
military consumers. So anybody who's in the military considering a
title loan should look into something called the Department of
Defense Rule. Now, that is something that states that, um,
the military a p R for car title loans, these
those that have been offered since October one to two
thousand seven with a term m of one eight one
(42:01):
days or less cannot exceed thirty six percent. So that's
a decent um a decent rate. I mean, it's still high,
but it is. It's baked into this agreement, this um,
you know, this Department of Defense rule that says that
military you know consumers have been given uh you know,
well they have to be given all of the certain
(42:22):
disclosures and loan costs and you know know, the rights
as borrowers and everything. But they do have these certain
protections built in, whereas the rest of US civilians, I
guess don't don't really have the same protections built in
that that they would, so we might be um more
susceptible to these predatory practices, which to me, the idea
that there would be a special consideration for military members
(42:44):
uh is incredibly indicative of recognition at a governmental level
that this is bad business. Yeah yeah, I mean it's
nice as they're doing that, and it's great, but they're
also saying, you know, like why wouldn't they say that
for the rest of the citizens. You know, why would
why wouldn't it be allowed for everybody? Um? I don't know.
(43:06):
It's it's interesting when you when you really dig into
the states that allow and don't allow certain things, and
you wonder why. Um, you know, it's so different when
you travel, you know, across state lines. What what's what's
the difference? Really? I mean, why isn't it being UM
regulated the way other loans are regulated? Yeah, so let's
(43:26):
get some perspective here, Scott, what about the other side
of the eye. Well, listen, there's a guy that this
is from an article on bank rate dot com and
it was written in two thousand thirteen. That's where I
got the older stats from as well. But this guy,
his name is a is is Fred windchar Now Fred
is a lender, and he is attempting to defend his
(43:49):
practice and in the in the in the article here, um,
he says that you know he's what he First of all,
he's well aware that the industry has a reputation as
a source of predatory lending. And this guy is the
president of an Illinois based company called quad W International,
or at least he was UM and a place called
max cash title loans, Max cash title ons. Okay, funny name.
(44:12):
Um he blames here's what here's where he blames the
whole downturn on. He says, he blames the mom and
pop lenders with questionable business practices for giving the industry
a black eye early on. So he's saying that, you know,
there are some bad eggs in this in this bunch,
and he says, because they're so bad, uh, they become
you know, the thing to look at instead of all
(44:32):
the good guys who are doing the good things. So
he's saying that there's some legitimate business owners out there
that are doing the right thing. They're they're not charging
these exorbitant rates and extra fees and trying to complicate
things in order to get the repossessed vehicles, that type
of thing. But but that's what happened about three decades ago,
and the industry has become full of businesses like that,
(44:54):
you know, trying to repossess people's cars, trying to make
things more complicated, trying to um never get you know,
never allow somebody out of this cycle of debt that
they're in, and you know, creating these enormous interest rates
and amortized loans. All this is it's just a big
complicated mess that it's gotten into. He says, although unethical
car title lenders still exist, their numbers are shrinking. So
(45:17):
even now, like he's saying, you know, but we we
said that the number of these businesses has gone up
in the last couple of years, and you know, the
number of loans that people that are taking out loans
are going up. So it's it's getting um more crowded,
I guess, in this in this industry, this car title industry.
But he does say that, um, when you talk about
(45:37):
the industry being predatory, he he does agree, and he
says at one point it was really predatory. Now he
calls it competitive. It's competitive industry. Um. And he also
says that his industry fills a need for consumers who
have tried to obtain traditional loans only to be rejected.
So the idea here, and this is something that goes
right back to what we said at the very beginning.
It's it's again, it's it's predatory. In the way that
(46:00):
he's even saying this, he's just saying it in in a
different way. He's churched it up a little bit, right,
he said that, Um, he's filling a need for consumers
who have tried to obtain traditional loans only to be rejected.
These are people that can't get it alone because of
you know, bad credit, no credit, Um, you know past history. Uh,
they've had you know, title loans in the past that
they've defaulted on. You know. Just that's the group of
(46:22):
people that they're going after. And he's saying, yeah, we'll
loan your money. But here the here are restrictions and
it's it's heavy penalty. And I want to add something here, Scott.
I appreciate you taking the time to present that perspective,
and I think it's a good point that not all lenders,
especially if it's state by state there's a uniform regulation. Uh,
(46:43):
not all lenders are these bad apples you hear about.
Some are legit. And of course the interest rates are high.
They're thirty six percent or you know ballpark near there,
but they're not three as they could be. You know,
they could be charging that and they're not doing that.
So there's another interesting group of statistics I have, which
is how the borrowers feel. Again, this is from UH.
(47:09):
Bars were asked overall, do you think that auto title
loans mostly help borrows like you or mostly hurt. Borrowers
like you said they mostly helped, said they mostly hurt,
And then I know that's surprising. Another question was have
auto title loan has been more a source of stress
(47:29):
and anxiety for you and your family or more something
that has relieved stress and anxiety. Fifty eight percent said
it relieved stress. Eight percent said it was a source
of stress. Wow, that's you know what these numbers are
the reverse of what I would think. Me too, Me too, buddy.
They don't add to because you know, don't know refused
(47:52):
or they do both well, you know, like the answers
they this plays into what fred Winchar said. You know,
as we just quoted Um, he's saying that he's, he's
his industry fills the need for consumers who've tried to
obtain traditional loans only to be rejected. So clearly that's
the people that we're talking about there. It's like this
is a form of relief for them because they had
no other option. And and but I'll tell you though,
(48:14):
if you're if you're out there listening to this, and
we've you know, I think we've painted a pretty dark
picture of what a car title loane is. And I
again had no idea all this was happening right under
my nose around the corner here in Atlanta, you know,
or wherever, um, you know, at all these car title places.
I didn't know it was quite this bad. Um. But
there are some things that consumer advocates will say, um,
(48:34):
you should do instead of maybe taking a car title loan,
you know, other ways around it. I guess you know,
alternative options, you know, I want to talk about a few,
and maybe we can wrap it up with this, maybe
final thoughts or something that's um. So, consumer advocates will
say that conventional loans are always going to be the
ideal scenario. But if you can't do that, if you're
shut out of the conventional loan market, there are other
(48:55):
options and and one of those And this is so
simple when you really think about this. You know, we
said title loans have only been around since about somewhere
around there, you know, late eighties, early nineties. Just think
about what people did or thirty years ago before any
of these products existed, and just do that. I mean,
just you know, because before this you didn't have that option.
(49:17):
You had to find a way around it. And if
you were shot out of the bank. There are other
ways to do things. So here's a couple of things
you can do. And I don't recommend a couple of these.
Some of these are terrible options, but I won't tell
you which ones I think are bad, and you know
versus good. But okay, here's a few possibilities if you
want to think of it this way. You can go
to your employer and ask for a paycheck advance. What
(49:37):
do you think of that? I know, I mean that's
maybe if you maybe if you work for a family
owned company, but I think for a lot of corporations
that's not gonna fly. Yeah, I think you're right. You
can also talk to your family or friends about a
personal loan. Okay, that's always an option. People have done
that since the beginning of time. I think that's always
(50:00):
if he for both you know, both sides a lot
of times. You know what, maybe that's another Clark Howard
Show issue. You can you can probably find a lot
of information on his site about that um or how
he feels about a loan, a family loan. UM. Here's
another thing that a lot of people don't realize. Religious
institutions and community groups often are able to offer financial
help to people that, um, you know, they don't often
(50:21):
advertise this that they but they do have funds available
for people that in their community that are, you know,
having trouble, having some some financial problems. They won't have
a lot, but a lot of times they can give
you a small loan to get you by. And and
that's kind of well, I mean it makes sense a
religious institution or you know, community group that someone who's
there to better their community, UM in you know different ways.
(50:43):
You know, whether it's uh, you know, um, civic duties
are you know, spiritually or whatever this is uh, this
is something that you know, they would be oftentimes happy
to help you out with. And a lot of people
don't think of that as an option. Now, credit unions
are a great option. Oftentimes they'll give you us even
a all dollar loan if you if you want something
like that, UM and interest rates that are really reasonable,
(51:05):
especially you know when you compare them to what we
talked about with the auto title loans, you know, they're
nowhere near that. I guarantee that. So so look into
your credit unions as an option. And of course, I
mean there's there's other you know ways around this as well.
But if you're settled with a car loan, you know,
a car title loan, the best course of action is
(51:25):
to pay it back as fast as you possibly can
um avoid all the interest that you can, you know,
by paying early. Make sure that your loan allows you
to pay back early without penalty. Um. But if you
do have one of these car title loans, um, I
hope I said car title in just a moment ago,
but it's a title loan in particular, do whatever you
have to do to pay that off immediately. Just get
(51:46):
out of it, get out from underneath it and uh.
And then try to get yourself in a position if
you can, where you can find a legal or a
loan that is much more fitting for your situation. I mean,
is just chuggling because for a second, I thought you
were gonna say, find a way find a legal or
I thought you're gonna say or different sort of illegal. No,
(52:08):
I just mean, um, you know, try to find a
legal source, you know that you can borrow from in
the future if you ever have to do that again,
something that is far less um um difficult to pay back,
some something that you won't feel like you're just you know,
the weight of the world on your shoulders and you're
trying to make that payment at the end of the month.
Because a lot of people in that position. But those
stats that you said are puzzling to me Ben there too.
(52:31):
They're just they're their opposite of what I think. So
it's actually kind of nice to hear that. You know,
it provides some relief in some way to some families,
but man, it just seems like it's it's a bad situation.
When you really read all these articles, you know, you'll
you'll find titles of of um, you know, why car
title loans are always a bad idea, our our car
(52:51):
title loans a good idea, why consumers should be weary.
Those are the headlines that you'll read. But maybe there
is a group of people out there that they do
suit And who are we to say who that that
you know works for and doesn't work for? Right, And
we want to hear from you if you have any
personal experience with this, if you are involved in the industry,
(53:13):
if you have an additional point that we missed, or
a perspective that you think your fellow listeners could benefit from.
I think we try. We tried to you know present
both sides pretty well, I think, I mean with the
lender and you know, and we're letting people know what's
really going on to just kind of the cold heart
facts of the case, I guess. And if you if
you are in a situation where you are considering something
(53:35):
like that and you have not yet done it, UM
will say in without you know your situation as your own,
we can't tell you what to do, but we do
hope this information put you in a better place to
be completely aware of the dangers involved. And again, one
week ago, I had no idea, you know, any of
(53:55):
this was happening. So it's real. It's a real eye opener,
I guess from from my point of view. Ways, and
so we hope that this episode has been illuminating at
least at least a decent listen. I feel like we're
also going to get some people writing in to tell
us about the weirdest things they ever founded a pawn shop. Oh,
I hope we do. Yeah, I'm all ears on that one,
(54:16):
or eyes, I guess because I'm reading an email. You
guys get the gist. Uh. Anyhow, so we are heading out.
This concludes our episode, but not our show. Thank you
so much for listening. You can find every single episode
Scott and I have ever done on our website car
Stuff Show dot com. You can join us on Facebook,
where Scott a regularly post all sorts of strange stuff
(54:36):
that he finds on the Internet. Strange stuff, all sorts
of fascinating it's bits of auto trivia, incredibly cool stuff,
all sorts of incredibly cool stuff from I've got been
at a headlock until he says that's until he says
it right, all sorts of incredibly cool stories, anecdotes, blast
from the past, and the bleeding edge of the future
(55:00):
of auto tech. You can find that. We're also on
Twitter where car stuff hs W on both of those
and if you have a suggestion for something we should
cover an upcoming episode, or you want to let us
know about the weirdest thing you found in a pawn shop,
or you have a perspective you'd like to add on
auto title loans, you can write to us directly. We
(55:20):
are car stuff at how stuff works dot com. For
more on this and thousands of other topics. Is that
how stuff works dot com. Let us know what you think.
Send an email to podcast that how Stuff Works dot
com mhm
CarStuff News
Hosts And Creators
Scott Benjamin
Ben Bowlin
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