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Land Of The Debt Serf: How "auto Title Loan" Companies Ruthlessly Prey On America's Growing Underclass

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http://www.zerohedge.com/news/2015-06-08/land-debt-serf-how-auto-title-loan-companies-ruthlessly-prey-americas-growing-underc

Short-term lenders, seeking a detour around newly toughened restrictions on payday and other small loans, are pushing Americans to borrow more money than they often need by using their debt-free autos as collateral.

Their hefty principal and high interest rates are creating another avenue that traps unwary consumers in a cycle of debt. For about 1 out of 9 borrowers, the loan ends with their vehicles being repossessed…

But Jordan said it wouldn’t make a loan that small. Instead, it would lend her $2,600 at what she later would learn was the equivalent of 153% annual interest — as long as she put up her 2005 Buick Rendezvous sport utility vehicle as collateral.

State law limits payday loans to $300, minus a maximum fee of $45. California also caps interest rates on consumer loans of less than $2,500 on a sliding scale that averages about 30%. Consumer loans above $2,500 have no interest rate limit.

For that reason, essentially all auto title loans in the state are above that level, according to the state’s business oversight department.
– From the excellent
LA Times
article:

Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the “Recovery”:

Families’ savings not where they should be: That’s one part of the problem. But Mills sees something else in the recovery that’s more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.

According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too.

It’s not the case that every one of these middle- and upper-class households turned to pawnshops and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist. “People who are in these [non-bank] situations are not using these forms of credit to simply overcome an emergency, but are using them for basic living experiences,” Mills says.

Yesterday, the LA Times published an excellent article on the topic of auto title loans describing what they are, and how they are being used to prey on America’s growing underclass of debt serfs. We learn that:

Cash-strapped consumers are being shown a new place to find money: their driveways.

Short-term lenders, seeking a detour around newly toughened restrictions on payday and other small loans, are pushing Americans to borrow more money than they often need by using their debt-free autos as collateral.

So-called auto title loans — the motor vehicle version of a home equity loan
— are growing rapidly in California and 24 other states where lax regulations have allowed them to flourish in recent years.

The American debt recovery in full force... When this pops what then?

Perpetual debt and debt slavery for all serfs.

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In terms of buying cars in the US, it has been pointed out that lending criteria loosened somewhat too in 2014



From Hoisington's QE 2014 review, which refers to the US http://www.hoisingto...HIM2014Q3NP.pdf



"2014 has witnessed a resurgence of consumer auto and mortgage lending that was achieved by a lowering of credit standards. The percentage of subprime consumer auto loans (31%) returned to the peak levels reached prior to 2008."



For an insight into how car sales in the US works, you can learn a lot from the TV series King of Cars - it is on Youtube. Basically, they sell cars to many buyers on a $ per month basis - right out to 72 months if they need to in order to get the payments down. No mention of interest rates, but I bet they can drift up a bit!

Edited by pipllman

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