Title loans are the bane of many existences, but not in Maryland! Not only are title loans illegal in Maryland, but the laws are actually enforced (lookin’ at you, Ohio!) making the Free State free from predatory loans that could send its residents into an ever-dizzying spiral of debt.
The Low-Down on Title Loans
For those of you who aren’t familiar with title loans, you can thank your lucky stars you’ve never been subject to the ridiculously high interest rates these loans carry.
Title loans are (or should be, anyway,) a very last resort for people who need emergency money, and fast. No credit? No problem! No income? You probably won’t have to prove that you have money coming in, so also not a problem.
Well, not a problem for title lenders, anyway, since they’ll be holding on to your original car title as collateral for your loan, and they won’t hesitate to repossess your sweet ride and sell it out from under you. If you’re lucky, they’ll send you the surplus proceeds, though. If you’re lucky.
Here’s how it works: You need money right now, so you drive your vehicle to a title loan storefront, fill out the paperwork, and fork over the original title to your car and an extra set of keys, because that’s how confident title lenders are that you probably won’t be able to pay back the loan.
Meanwhile, the lender will inspect your car, decide how much money it’s worth, and offer you somewhere between 20 and 40 percent of that amount.
If you live in a state where there’s no such thing as an interest rate cap on title loans, you’ll most likely be charged around 300 percent APR, or 25 percent a month. At the end of the first month, the principal amount plus the interest accrued will be due.
But you probably won’t be able to pay the whole amount (most borrowers can’t,) and so you’ll just pay the interest and roll over the principal to the next month, at the end of which you’ll owe the original amount plus another heaping helping of interest.
Roll over the loan the typical eight times, and the interest you’ll pay back will be about double the amount of the principal. Roll it over for a year, and you’ll pay back three times the amount of the principal. In other words, a $1,000 title loan will cost you a total of $3,000 at the end of eight months, or $4,000 at the end of a year.
And that’s how title lenders make a $3.6 billion profit every year on the $1.6 billion they loan. Well, that and repossessing and selling the vehicles of one out of every six borrowers.
Three Cheers for Maryland!
Maryland is having none of this legal loan sharking nonsense, and as such, title loans and payday loans – the two worst types of predatory lending – are regulated by Mayland laws to protect consumers.
And the Financial Regulation Commissioner isn’t afraid to pursue legal action against companies who try to lure Maryland residents into a title loan contract over the Internet.
In 2007, Maryland sued two companies who were providing $300 loans to Marylanders online. One of these companies charged an interest rate of 782 percent APR, and the other – are you holding on to your hat? – charged 1,140 percent APR.
Three Boos for Virginia!
But then, in 2011, Virginia went and rained on Maryland’s parade when then-governor Bob McDonnell signed a bill into law that allowed Virginia title lenders to loan money to people with out-of-state vehicle titles, meaning that anyone from Maryland could simply head over the border to predatory loan-lovin’ Virginia to get on the fast track to financial ruin.
But Maryland didn’t just sit back and curse Governor McD’s name, oh, no. No, the Maryland Attorney General’s office immediately started monitoring the title loan advertising coming out of Virginia and directed at Marylanders, and they made it absolutely clear that every bit of paperwork regarding a title loan would have to be completed in Virginia, including the actual signing of the loan. Anything having to do with the paperwork for a title loan that takes place on Maryland soil renders the title loan null and void in the eyes of Maryland law.
Try This Instead
If you live in Maryland and are considering a road trip to Virginia to take out a title loan, reconsider! Seriously, unless there’s a death bed involved and money is the only thing that can bring someone back from the brink, find another option for getting money.
If your gas or electricity has been shut off, contact the provider and try to work out a payment plan, or contact your local Department of Health and Human Services for government assistance with your utilities, thanks to the Federal government’s Low-Income Home Energy Assistance Program.
Talk to friends or family members about a short-term, small dollar loan, or contact a local credit union to see whether they offer small dollar, short-term loans. Your credit may be bad, but it’s possible that it’s not bad enough to be denied a small dollar loan through a credit union, and it never hurts to ask!
As a last resort, consider going the traditional route and pawning something of value that isn’t your only means of transportation. If you can’t pay the pawn shop back, at least it’s a ring or a TV or a Wii you’re losing and not your ride to work or your kids’ lift to school.
Maryland Car Title Loans FAQs
How does the law regulate title loan interest rates and fees in Maryland?
Maryland title loan laws require lenders to be licensed, discouraging illegal title lending activities. The state of Maryland protects consumers against fraud.
Any false advertising and selling or charging for any kind of insurance are considered predatory actions and lenders may be fined for them by law.
Under Md. Code Ann. Law II § 12-Com. 301 et seq., consumers are protected. Even if lenders are allowed to charge APR, the state limits Maryland title loan amounts, rates, and terms. So make sure to do some research if you ever consider taking out a title loan in this state.
Where can I find help regarding title loan issues in Maryland?
Title loans in Maryland are regulated by Md. Code Ann. Law II § 12-Com. 301 et seq. The official body that controls the lenders of Maryland and protects consumers’ rights is the Maryland Department of Labor, Licensing and Regulation.
In case of any question or complaint, you can always address them. Find all the contact information on their website. Check this Consumer Complaint Form.
Are car title loans considered pawn transactions in Maryland?
No, a “vehicle title loan” is not a pawn transaction. A pawn transaction is subject to the Maryland Secondhand Precious Metal Object Dealers and Pawnbrokers Act, Md. Code Ann., Bus. Reg. (“BR”) § 12-101 et seq.
Under the Pawnbrokers Act, a pawn transaction “is defined as a loan of money by a pawn dealer on the deposit or pledge of personal property or other valuable thing, or a purchase by a pawn dealer of personal property or other valuable thing based on the condition of selling the item sold back to the consumer at a stipulated price.”
Meanwhile, vehicle title loans are “a type of secured consumer loan subject to MCLL, and non-exempt persons offering or making vehicle title loans to borrowers in Maryland are “consumer lenders” subject to the licensing, investigation, and enforcement authority of the Commissioner.”
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