It seems like every legislative session now the issue of title loans is brought up, usually because somebody wants to either ban them or cap interest rates to de-facto ban them. The language and rationalization for these laws seem plain enough. However, as with any bill, the first question anybody should ask is: Who stands to benefit most from these laws; the consumer or their competitors?
For example, the big lenders, from banks to credit unions, depend on your credit score and income to determine whether they can lend to you and what your interest rate will be. If you have insufficient or irregular income based on their own parameters, or if your credit score is not up to par, they will either deny you a loan outright or charge you a higher interest rate. The problem with this is that even if you are denied by the first bank, that loan application still goes on your credit, which, in time, can negatively affect your credit history and score.
If a family with non-perfect credit tries to get a loan from multiple banks in a relatively short period of time, it can destroy their credit for a long period of time, even if no money was ever lent to them. Is that fair? Not just that, but shopping around for a low-interest rate is deliberately impossible, as banks usually advertise ridiculous rate ranges from as low as 2 percent to as high as 20 percent, with your actual rate being kept a secret until after you apply, denying you the ability to shop for a lower rate without applying with multiple banks and lowering your score some more, and thus rationalizing an even higher rate.
In fact, it would almost seem as if it were the banks themselves being predatory, trapping you into applying for loans with secret rates and then punishing you for applying for loans with other companies when you want to shop around for something better. It would almost seem that they secretly hope that by threatening your credit they can intimidate you into taking the first or second loan that you are approved for, and that they have a vested interest in your inability to shop around for a better rate because they definitely have ways to punish you for doing so.
Now let’s look at title loans. Title loan companies normally use Kelley Blue Book to determine the vehicle’s value and the loan amount. This is something everybody can check at home, so right away you know how much you’ll be able to get. Also, they’ll almost always be able to tell you what your interest rate will be over the phone before you ever apply, so calling around and comparing rates is again something anybody can do. They never do credit checks, either, so there won’t be a hit on your credit for applying.
With title loan companies it’s all about shopping around to find the most reasonable and responsible company to do business with, and a simple phone call never goes on your credit. When talking about responsible consumer lending, please keep in mind that there is nothing actually stopping title loan companies from making sure people have the ability to pay for their loan before they are approved. There is nothing requiring them to charge the state’s interest rate maximum. There is nothing requiring them to repossess a vehicle if the customer just needs an extra day.
There are title loan companies out there that actually treat customers like people, it’s just that consumers need to do a little research before they go in and apply and read the paperwork before they leave.
Laws that want to push title loan companies out of the state are not grounded on moral outrage, they are clearly manufactured by the large financial institutions that are dedicated to maintaining their monopoly on the consumer credit market; and while they can pretend that no loan at all is “better than a title loan,” for a family trying to meet a monthly shortfall or facing a crisis, that small loan can mean the difference between a roof over their heads or living in a shelter.
House Bill 562 is coming up for a vote on Wednesday. I urge the House to kill the bill and get back to creating jobs, not killing them.
Joseph Turcotte of Manchester is store manager for Auto Equity Loans in Manchester.