Tighter controls on auto title lending

The Consumer Financial Protection Bureau (CFPB) wants to introduce a rule aimed at ending payday debt traps by requiring lenders to take steps to make sure consumers have the ability to repay their loans, in response to concerns about the auto title lending market among others.

The proposed rule would also cut off repeated debit attempts that rack up fees. It would cover payday loans, auto title loans, deposit advance products, and certain high-cost installment and open-end loans.

The proposal would cover loans for which the lender charges a total, all-in annual percentage rate that exceeds 36%, including add-on charges, and either collects payment by accessing the consumer’s account or paycheck or secures the loan by holding the title to the consumer’s vehicle as collateral. Some of the installment loans covered by the proposal have balloon, or lump-sum, payments required after a number of interest-only payments.

The bureau’s research, which looked at loans from several payday installment lenders, found that over one-third of loan sequences end in default, sometimes after the consumer has already refinanced or reborrowed at least once. It also showed that nearly one-third of auto title installment loan sequences end in default, and 11% end with the borrower’s car being seized by the lender.