Consumer Federation of California

Payday lenders have been on the Center for Responsible Lending’s radar for more than a decade, and rightly so. Their abusive loans feature triple-digit APRs’460% in California’that trap borrowers in long-term cycles of debt.

But payday loans aren’t the only high-interest, predatory loans that dot the fringe financial marketplace: Car title lending’making triple-digit APR loans that are secured by the borrower’s car’is a growing  business in the Golden State. The state’s top three car-title lenders made more than $25 million in loans in 2009. (According to the Department of Corporations, which regulates car-title lenders, 2009 is the last year for which data is available.)

What company is perched at the top of that short but dubious list?

1-800LoanMart, an Encino-based company that made $19 million of the $25 million industry-wide total. They are putting all that ill-gotten cash to good strategic use, and recently signed a multi-year sponsorship deal with one of the NBA’s hottest teams: the Los Angeles Clippers.

The Clippers know basketball, and we know bad loans. We especially know, from the crash and burn of the risky subprime lending market, that just because a business is booming, doesn’t mean that it’s a good business. Unfortunately, the Los Angeles Clippers, may not be as familiar with car-title lending and how it strips California families and communities of millions of wealth every year. We’ve started a petition to urge them to reconsider this toxic relationship and publicize the dangers of car-title lending to the financial well-being of Californians.

Car title loans may not be as well-known as payday loans, but in many ways they take up where payday loans leave off: borrowers don’t need checking accounts, but they do need a car. And that car is then on the line. Here are some key facts about car-title lending in the Golden State.

Car-title loans have triple-digit interest rates. In California, there is essentially no limit to the amount of interest a car-title lender can charge, though 1-800LoanMart stipulates that 180% APR is the maximum for their loans. To put this in perspective, a $2, 600 loan over 12 months with an APR of 180% would mean payments of nearly $500 each month. At the end of the year, they would have paid more than $3,000 in interest alone.

Car-title loans are secured loans. Triple digit interest rates on car-title loans shouldn’t be necessary if the lender can take back a borrower’s car. Borrowers who are having a difficult time making ends meet will often be forced to choose between making high-interest payments on their car-title loan or losing their only form of transportation.

  Car-title loans sink borrowers in high-cost debt. Car-title loans in California are installment loans, which means that unlike payday loans they are not designed to be completely repaid within a short timeframe. But the APR is stifling, and translates into large payments that can be difficult to make for lower-to-moderate income borrowers.

In additional to these fundamental flaws in the car-title loan product, there is no shortage of complaints on 1-800LoanMart specifically. Wronged borrowers have complained about everything from misapplied payments and higher-than-expected payments to wrongful repossessions and harassment, and more.

Car-title lending is generally a bad idea. But 1-800LoanMart’s other questionable activities make it look even worse.

Shamefully, 1-800LoanMart and other car-title lenders are allowed to charge triple-digit interest rates even though every single loan is secured by the borrower’s car. But their partnership with a major and visible brand like the Clippers suggests that these flawed products are legitimate and acceptable, when really they drain millions from hard-working California families and jeopardize borrowers’ transportation.

We think that the L.A. Clippers could find a much better sponsor for their team than the leader of an unscrupulous industry. If you agree, sign and share our petition. Just as car-title lending on its own is a bad idea, it is simply a bad idea for an NBA team to legitimize it. Car-title lenders like 1-800LoanMart exploit Californians and saddle them with expensive and dangerous debt.

While the Clippers make 1-800LoanMart look good, 1-800LoanMart makes the Clippers organization look bad. Tell the Clippers to bench 1-800LoanMart today.