Taking out a title loan is never a good idea unless you’re absolutely certain that you can pay back the loan in full at the end of the initial 30-day period. The typical borrower can’t, and that’s when the trouble starts.
Month after month of interest payments – at interest rates in the vicinity of 300 percent annually (25 percent a month) or more – quickly leads to a cycle of debt that can be very hard to break free from. In the end, it’s fairly common for a borrower to end up paying back over three times the original loan amount, all the while having to blow off other important bills, like rent and utilities. If you default on the loan, the lender will repossess and sell your car to cover the outstanding balance, and you may or may not get the surplus from the proceeds of the sale of the car, depending on which state you live in.
Title loans are legal in Missouri, and while it’s not the best state in which to take out a title loan, it’s certainly not the worst. That dubious award goes to Georgia, which generally views poverty as a scourge entirely of one’s own making and therefore has absolutely no sympathy for the 1.8 million residents who live in it, which is probably why that state has the third highest poverty level in the nation and continues to make deep cuts to government assistance for poor families. Apparently, in Georgia, family values means doing everything possible to make sure poor families suffer as much as they fully deserve to suffer. For some Republican state candidates running on the Family Values platform, “Family Values” means ultra-juicy sex scandals involving lobbyists and mothers-in-law.
But I digress. As much as I’d love to discuss the wholly immoral farce that is the Republican Party’s idea of Family Values, I’m here to tell you about taking out a title loan in Missouri so that you can make an informed decision when it’s time to take out a high-interest, predatory title loan so that you can afford to feed your family when there’s no way in hell your minimum-wage paycheck will cover an emergency car repair.
Missouri Title Loans: The Quick & Dirty Lowdown
Title loans in Missouri are governed by Missouri Revised Statute 367.500, which clearly states that title lenders are required to consider the borrower’s ability to make the payments before lending any amount–although nowhere do the statutes require the lender to see any proof of income from the borrower.
Missouri has declined to put a rate cap on title loans, so such a loan in that state is almost guaranteed to carry an interest rate of at least 300 percent annually, which translates to 25 percent a month. At that rate, a $1,000 title loan will cost you $250 for every month you don’t pay it back, on top of the $1,000 principal.
Missouri law also makes it painfully clear that borrowers are not to be “indebted to a title lender for any great period of time.” To that end, the state instituted a regulation intended to prevent the seemingly endless cycle of debt in which the majority of title loan borrowers find themselves mired.
Now, in most of the 20 states where title loans are legal, you can pay only the interest due and roll over the principal to the next month, accruing another helping of 25 percent interest. Most states don’t have a limit on how many times you can roll over the loan, and the average number of times borrowers end up doing so is eight. So a $1,000 title loan at 300 percent APR (25 percent a month) will, at the end of the eighth month, end up costing a total of $3,000 – the $1,000 principal plus $2,000 in interest.
Now, in Missouri, title lenders are only allowed to roll over the loan twice, after which rolling it will henceforth require the borrower to pay the interest plus enough money to whittle down the principal by 10 percent. If the borrower can’t swing that, the title lender can either cry “Default!” and repossess the car or reduce the principal amount by 10 percent themselves.
But A Spade May Not Be a Spade in Missouri
As sleazeball operations in morally questionable industries are wont to do, Missouri’s title lenders got sneaky in the late twenty-oughts in order to bypass the laws that were meant to protect consumers from the wild, money-grubbing feeding frenzy of said sleazeball operations. So what they did was, they showed their contempt for laws and lawmakers by beginning to issue title loans under the regulations of other types of small dollar loans for which the law is more lax since the family vehicle isn’t at stake. In doing so, title lenders totally blew off the rule that says the principal has to be reduced by 10 percent upon the third and subsequent rollovers. This ended in a lot of tears for more than one borrower.
State regulators largely turned the other way, as many state regulators tend to do when business profits are at stake – just look at Ohio, the poster child of not giving a flying leap[Mike, link to Ohio here.] about the illegal and unethical practices of title lenders – and it was up to a couple of attorneys to make it right. The class-action lawsuit they filed involved Missouri Title Loans, which is just one of the 20 percent of Missouri’s title lenders that decided to play by their own damn rules. The case opened in 2007 and ended in early 2015, after two trips through the Missouri Supreme Court and three through the U.S. Supreme Court. Finally, though, the courts did the right thing, and Missouri Title Loans was ordered to refund more than $5 million to around 5,000 borrowers. One of the lawyers representing borrowers remarked, “If it looks like a title loan, it smells like a title loan, and it works like a title loan, it’s a title loan.” (Someone should tell that to poor, confused Ohio!)
So chances are, after that ruling, Missouri Title Loans and other rogue title lenders will adhere to the law and stop acting like their rich daddy owns the world and therefore, laws and consequences don’t apply to them.
Missouri’s Borrower-Friendly Repo Regs for Title Lenders
One good thing about taking out a title loan in Missouri is that if you default on the loan on the first of the month, the lender can’t swoop in on the second and take your car under the cover of night. Title lenders have to follow clearly stated protocol in order to repossess a car after default, which is really good news if you get in over your head after taking out a title loan.
First, the loan has to be at least 10 days past due for the lender to start the repossession proceedings. Then, they have to send you a “Notice of Default & Right to Cure,” which reads:
“You are late in making your payment. If you pay the amount now due (above) by the last day for payment (above,) you may continue with the contract as though you were not late. If you do not pay by that date, we may exercise our rights under the law.”
You have 20 days after the date of this notice to pay up. If you pay, but now you’re 10 days past due again, a “Second Notice of Default & Right to Cure” has to go out, and you have another 20 days to pay up.
If you don’t pay, your car will be repossessed. But before it can be sold, the lender has to send you a “Notice of Our Plan to Sell Property,” which reads:
“We have your ________, because you broke promises in our agreement. It is our intention to file for a repossessed title and dispose of the collateral as follows…” The date, time, and place of the sale must be disclosed, and the notice must specify that you can attend the sale and bring bidders to get the car back. It must further inform you that the money from the sale will go toward the outstanding loan balance, but that you’ll have to pay any deficit, and any surplus will be sent along to you in due time.
Once the car is sold, a “Notice of Sale of Collateral and Possible Deficiency” is sent, which breaks down the amounts owed (including any charges associated with the repossession) and indicates whether you still owe money on the loan or you’re due to receive a check for the surplus amount. The notice warns that the lender will start to charge you interest on any unpaid amounts, and it specifies the accrual of interest as a daily amount.
So There You Have It.
All title loans are dangerous, and you should always explore other options for covering an emergency [Mike, link to “Need Emergency Money Fast? 6 Resources to Try Before You Settle on a Title Loan.”]. But if you end up having to take out a title loan, make sure you know your rights under the law, and don’t sign a thing until you fully understand the terms of the loan, including the interest rate you’re being charged and how interest accrues.
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