Feds Target Auto Title Lenders for Deceptive ‘Zero Percent’ Loans

Lenders failed to disclose how mind-boggling rates and fees could come into play.

Feds Target Auto Title Lenders for Deceptive ‘Zero Percent’ Loans Photo (cc) by Jo Naylor

An advertisement for a short-term, zero percent car title loan may be tempting. But federal regulators say car title lenders often use deceptive marketing to attract consumers. So that zero percent loan is probably far from what you’ll get.

In its first case against car title lenders, the Federal Trade Commission has reached settlements with two companies, requiring that they halt their use of misleading advertising to market their loans to consumers.

The FTC alleges that First American Title Lending of Georgia, LLC and Finance Select, Inc. advertised zero percent interest rates for 30-day car loans, but failed to disclose information about the loan conditions or the hefty finance charge that would be imposed after the introductory period on the loan ended.

Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement:

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. 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.

Similar to payday loans, a car title loan is a high-cost, short-term loan. Instead of securing the loan with a postdated check, consumers are required to hand over their car title as collateral.

Unfortunately, as with payday loans, car title loans can often become longer-term, locking borrowers into high interest payments with devastating financial consequences. The FTC said:

The annual percentage rate of a car title loan can be over 300 percent. If a consumer does not repay the loan within 30 days, high finance charges can add up quickly, with a consumer paying hundreds or thousands of dollars in fees or forfeiting the vehicle.

The FTC alleges that First American Title Lending, which has 30 locations, advertised a zero percent loan offer without disclosing the conditions the borrower must meet in order to lock in the zero percent.

“The borrower had to be a new customer, repay the loan within 30 days, and pay with a money order or certified funds, not cash or a personal check,” the FTC said.

The offer didn’t apply to borrowers that didn’t meet the conditions, and then First American Title Lending would assess a finance charge, from the start of the loan. The company also failed to disclose the amount of the finance charge.

The FTC alleges that Finance Select, which operated as Fast Cash Title Pawn, didn’t tell borrowers that the loan had to be paid in 30 days or the zero percent offer was null and void, leaving the borrower to pay a finance charge. Again, this car title lender did not disclose the amount of the finance charge.

The companies are now required to disclose qualifying loan terms and potential finance charge fees.

What do you think of the FTC going after car title lenders that are intentionally misleading consumers? Share your comments below or on our Facebook page.

To learn more about risky loans in the marketplace, watch this Money Talks News video.

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