Car title loans trap low-income families in debt

In December 2014, Paul Gillespie’s wife died of a heart attack. He buried her on a Tuesday. On Saturday, more difficult news arrived: his landlord called and said she was selling the building, and he and his two teenage daughters had to find new accommodation.

Gillespie has moved. But the bad times follow one another: the following spring, he has a heart attack, forcing him to take time off from his work as a welder.

“I was running out of money. I had just spent $ 10,000 on a funeral, ”Gillespie said. He said he had bad credit and couldn’t get a traditional bank loan.

Then he recalled hearing advertisements for what are called car title loans. It is a way for people who need a quick cash loan to use their vehicles as collateral. He went to one of these lenders in Danville, central Illinois, near his home.

Half an hour later Gillespie said he came out with $ 2,000. But after paying all the interest, Gillespie had paid over $ 4,000 to repay the loan.

“I was like, ‘Holy cow, I can’t believe I’ve been that stupid,’” Gillespie said.

Gillespie was not stupid; he was desperate.

Car title lending has only been available in Illinois since 2009. There are 57 companies licensed to make these loans, but many have multiple locations, resulting in thousands of locations spread across urban, suburban, and urban communities. rural.

Thousands of low-income families have increased their debt by taking out these high-interest loans, according to the nonprofit Heartland Alliance.

Here’s how it works: An auto title loan does not require the same type of scrutiny as a traditional loan. A borrower applies and hands over title to the car if it is approved. Illinois does not have regulations on how interest rates are determined. Each securities company can decide what factors to take into account in setting up the loan.

Anti-poverty advocates want state lawmakers to cap these interest rates, which they say can reach 360 percent in Illinois.

According to a Freedom of Information Act request filed by WBEZ, records show that 64,000 car title loans in Illinois resulted in repossession, loan write-off or default in which at least one payment was missed.

But here is a more complete picture of the impact of these loans.

According to the Illinois Department of Financial and Professional Regulation, the average length of a car title loan is 515 days. The average loan is $ 1,035 with fees of $ 2,758.

Always according to the state, as detailed in this report, the average income of borrowers is $ 26,219 per year. Last year, 68,537 securities loans were taken out; the peak year was in 2013 with 100,386. Since 2009, 751,558 loans have been contracted for a total amount of $ 778 million.

“It’s not just that you are going to lose hundreds of thousands of dollars on these loans, that you are going to lose. But you also run the risk if you can’t pay the loan, you will lose your car, ”said Jody Blaylock, financial policy analyst for the Heartland Alliance.

The maximum loan amount that can be taken out at one time is $ 4,000. According to the Consumers Federation of America, Illinois is one of 16 states with triple-digit interest rates.

Attention to auto title lending in Illinois is intensifying. As researchers and advocates watch the gap widening between the rich and the poor, they are highlighting the ways in which some financial practices are increasing this gap. Checks, payday loans, court costs, and fines for things like parking tickets can keep low-income people and people of color trapped in debt, making it harder to fight. poverty and wealth creation.

Several Illinois auto title lobbyists declined to comment for this story, and none of the company’s offices returned WBEZ calls or emails. But a few years ago, the head of the business group representing auto and payday loan companies testified before Congress. The group’s opinion in this testimony is that these short-term loans help families in crisis when no one else will give them loans.

But Blaylock said a reduced interest rate is crucial.

“Establishing a 36% interest rate cap is essential if we are to strengthen equity across the state and create opportunities for everyone,” she said.

Lawmakers introduced the Fair Loans Act in Springfield earlier this year, calling for a 36% cap.

Illinois State Representative Christian Mitchell, a Democrat, said the goal now is to reintroduce the bill early next year and, in the meantime, garner support in areas in the state that are not traditionally Democrats, but where residents of Republican districts are also struggling. financially.

“There is a lot of poverty downstate and the further you move into the suburbs where there are definitely people affected by these loans,” he said.

Nathalie Moore is the reporter for the south side of WBEZ. Follow her on Twitter at @natalieymoore.