Schneiderman said that the deal targets the relationship between repossession firms and car-title lenders that make short-term loans with triple-digit interest rates.
The terms of these so-called title or payday loans often violate the 16-percent interest rate lending limit of the state of New York.
Several title lenders also operate out of state and acquire customers via the Internet so they can evade New York regulations.
In car-title loans, the borrower’s vehicle serves as the collateral backing the loan. It will get repossessed when the borrower fails to make his or her payments.
The 10 companies that pledged to cease repossessing vehicles for auto-title lenders include Loss Prevention Services LLC, Victory Recovery Services Inc., Tri-City Auto Recovery Inc., Priority Recovery Inc., Minnesota Repossessors Inc., Empire Auto Recovery Inc., Del Mar Recovery Solutions Inc., Buffalo Auto Recovery Service LLC, ALSCO of Buffalo, and Advanced Recovery of New York Inc..
Schneiderman said that the other repo firms in New York that have not agreed to stop repossessing vehicles for payday lenders can face prosecution.
A 2013 study by the Center for Responsible Lending showed that the average auto-title loan, which is based on the vehicle’s value and not on the borrower’s ability to pay or creditworthiness, is $951 at an annual percentage rate or APR of 300 percent.
The study also found that there are about $1.6 billion in auto-title loans made every year to consumers who pay over $3 billion in interest.