Attorney General Files Charges Against Maryland Title Loans Businesses
Inside Subprime: May 1, 2019
By Lindsay Frankel
Earlier this month, Maryland Attorney General Brian E. Frosh announced charges brought by his Consumer Protection Division against a title loan firm. Frosh alleged that the title loan company issued unlicensed and usurious title loans in Maryland, causing financial harm to vulnerable Maryland residents while putting them at risk for repossession.
A title loan is a short-term loan that typically carries a high interest rate and requires the borrower to give up the title to their vehicle as collateral. The title loan firm in question was alleged to make loans to consumers, keeping the titles to their vehicles in case of default. If a borrower failed to make a monthly payment, the title loan company would repossess and sell the vehicle.
Title loans are often appealing to low-income borrowers with bad credit, because a credit check isn’t required to get quick access to cash. But they’re also dangerous for financially vulnerable people, since a repossession could mean the borrower can’t get to work and continue earning income. And the high interest rates make these loans difficult to pay back, which is why one in five title loan borrowers have their vehicles seized for default, according to the Consumer Financial Protection Bureau.
Maryland has laws in place capping interest rates and requiring licensing for consumer loan businesses. For example, annual interest rates can’t exceed 33 percent for loans of less than $25,000, which includes title loans and payday loans in Maryland. But the title loan firms in question were not licensed to make loans in the state, according to the charges. And the title loan companies issued loans with annual interest rates of 360 percent, which is far higher than the legal interest rate caps for loans in the state.
“Maryland’s usury laws protect consumers from companies charging outrageous and unlawful amounts of interest,” said Attorney General Frosh. “Title lending requires particular scrutiny, since the loans are often made to vulnerable consumers who risk losing their only means of transportation if they fail to repay their loan.”
Consumers in need of credit should consider all other alternatives before taking out a risky title loan. These loans can trap borrowers in debt, leaving them vulnerable to repossession. Even those denied traditional loans from banks or credit unions have other options.