DBO Moves to Revoke California Title Loan Firm’s License

Inside Subprime: March 20, 2019

By Lindsay Frankel

The Department of Business Oversight filed an administrative action to repeal the license of a California auto title loan provider that allegedly violated multiple state lending laws. The financial regulator also looks to make void any illegal loans issued by Long Beach-based title loan firm. The DBO additionally seeks to mandate that the company relinquish any interest and fees it collected through loans that violated state law.

While the title loan firm has a license for 12 California storefront locations, the company’s website advertises 31 locations. Aside from operating unlicensed locations, the title loan firm also charged borrowers unlawful interest and fees, openly marketed its lack of underwriting requirements, provided misleading advertising, and avoided maintaining proper records, according to the DBO.

Title loans use a borrower’s vehicle as collateral. Because of the high interest rates associated with these loans, many borrowers aren’t able to pay back their loans on time. The Consumer Financial Protection Bureau found that one-in-five title loans lead to repossession. DBO spokesman Mark Leyes noted that title loans are typically used by people with bad credit who lack access to traditional banking services. “For so many households, it becomes their last resort,” he said.

While current California law doesn’t cap interest rates on loans of more than $2,500, a 2018 California Supreme Court case confirmed the DBO’s authority “to take action when the interest rates charged [by state-licensed lenders] prove unreasonably and unexpectedly harsh.” The DBO has begun investigating whether the more than 100 percent interest rates charged by the title loan firm could be deemed unreasonably excessive under the law. The DBO also asserts that the title loan firm pushed borrowers into larger loans to avoid interest rate caps on small-dollar loans. The title loan firm added fees to increase the principal of the loan, charging more than 100 percent annual interest on three quarters of its title loans.

One of the illegal fees the title loan firm imposed on borrowers was a fee for copying the borrower’s vehicle key to prepare for potential repossession. The lender failed to report to consumers that it made a profit from the fee.

The DBO was also concerned about repossession rates at the title loan fimr. Though the company issued only 1 percent of all title loans between 2012 and 2017, they accounted for 5 percent of all title loan repossessions in California. The title loan firm repossessed borrower’s vehicles four to five times more frequently than the average California title lender.

Furthermore, even though California title lenders are required to verify a borrower’s ability to repay a loan, title loan firm regularly advertised that they did not run a credit check. They even made arrangements for other lenders to refer customers assumed to be particularly risky.

The title loan firm now has two weeks to respond to the accusation, which will result in an administrative hearing or the loss of the company’s license.

For more information on California title loans, see our city and state financial guides including AnaheimBakersfield, ChicoFresnoLos AngelesModestoOaklandRedding, RiversideSacramento, San DiegoSan FranciscoSan Jose, Santa Barbara and Stockton.