Car title loans: State imposes $4,000 cap, other consumer protections
Rules aim to close loopholes, take effect
Tighter restrictions on car title loans will put a cap on how much consumers can borrow and eliminate balloon payments.
The new state rules, which were announced Monday and take effect April 1, will establish a $4,000 limit on car title loans and prohibit any loan in an amount that would result in monthly payments exceeding 50 percent of the consumer’s gross monthly income. Lenders will be prohibited from making loans with balloon payments, allowing consumers to repay their debt in equal installments.
In addition, car title loans can be refinanced only if the principal has been paid down by at least 20 percent. And the amount of those refinancings cannot exceed the total outstanding on the primary loan.
The regulations also call for the creation of a statewide database of car title loans to enforce the new rules and require lenders to provide consumers with pamphlets from the Illinois Department of Financial and Professional Regulation outlining options for debt management as well as their rights and responsibilities.
Brent Adams, deputy secretary of the department, said the new rules are designed to strengthen 2001 regulations on loans of up to 60 days. Adams said many lenders evaded the rules by extending the term. The new regulations close that loophole.
Adams said the gap in the regulation allowed for loan terms that caused many consumers to be “trapped in a cycle of debt.”
“We certainly hope that we will find consumers able to eventually pay off their loans,” Adams said. “They will still be expensive forms of debt compared to other debt. But they will have a light at the end of the tunnel.”
Representatives of the car title loan industry could not be reached for comment.
Consumers with questions or concerns about car title loans can call the state’s hot line at 888-298-8089.