Title Loan Danger! FTC Finally Cracking Down

The Federal Trade Commission on Friday announced its first ever enforcement actions against car title lenders, alleging that two firms used deceptive tactics to market their loans to vulnerable consumers.

The actions against the two car title lenders — First American Title Lending of Georgia LLC and Finance Select Inc. — are part of a broader campaign by federal regulators against alleged abusive practices in auto lending practices targeting low-income borrowers. But unlike other federal actions against subprime auto lenders, the FTC’s settlements target high-rate loans that are secured by a borrower’s car that consumer advocates say are rife with abuses.

The FTC alleges that the two companies, each of which signed separate consent orders, advertised interest-free 30-day loans secured by borrowers’ cars without disclosing several key conditions that saw many of the loans issued balloon in costs and in many cases saw borrowers lose their cars.

“This type of loan is risky for consumers because if they fail to pay, they could lose their car — an asset many of them can’t live without,” Jessica Rich, the director of the FTC’s Bureau of Consumer Protection, said in a statement. “Without proper disclosures, consumers can’t know what they’re getting, so when we see deceptive marketing of these loans, we’re going to take action to stop it.”

Car title loans are short-term loans that typically come with high interest rates, sometimes more than 300 percent, according to the FTC. Rather than being secured with some other asset they are secured by a borrower’s automobile, which means that lenders can take the car if a borrower falls delinquent on a loan.

Although the loans usually carry a 30-day term, they frequently become costly installment loans when borrowers are unable to complete their payments, similar to what happens with payday loans. And in those cases, the fees and finance charges can build up quickly, leading borrowers to pay hundreds or thousands of dollars for their small loans or lose their car, the FTC said.

Consumer advocates say that happens with alarming frequency.

According to the FTC, both First American and Finance Select misled consumers about the nature of the title loans they took out, making it more likely that they would fall into the debt traps such financial products present.

First American, which operates 30 locations in Georgia, advertized its 0 percent interest offer in both English and Spanish without disclosing several key conditions for qualifying for the loans. Among them were that borrowers had be new customers, repay the loan in full within 30 days and pay with a money order or certified funds, not cash or a personal check, the FTC said.