Title loan causing overdrafts? You may have recourse
Your Business Credit
Dear Your Business Credit,
I have a small title loan through a title loan company here in South Carolina. I have made a couple payments over the phone to them in the past few months with my bank debit card. I just found out a couple weeks ago that they kept this debit card info on file without my permission, which makes me very upset. Secondly, I made a payment to them yesterday of $100, which I authorized. Then I find out that they charged my debit card another $100 today without my permission. I have had it with them and their sneaky practices.
What are my rights and what are the legalities against them? The reason this is such a huge deal is because taking that money today set off a chain reaction, overdrawing my account and not allowing other checks to clear because it put it in the negative. Now my account is in dire straits. I need some advice as to what I can do to them legally. Thanks. -- Aaron
What a nightmare! I hope you were able to clear up the situation with your bank quickly.
For the benefit of readers who are not familiar, a title loan is a short-term, high-interest loan that uses the title to your vehicle as collateral. Title loans, along with other short-term, high-interest loans such as payday loans, have been an area of great concern for the Consumer Financial Protection Bureau. Consumer groups have pressed the agency to place limitations on practices like the ones you experienced.
The CFPB has been considering a proposal that would require lenders to notify borrowers before accessing a consumer’s bank or prepaid account. Industry trade groups have been fighting against it. Nonetheless, the agency is preparing to unveil a new rule covering small-dollar loans with high interest rates and has been trying to build support for this measure, according to a recent article in the Wall Street Journal.
If you want to make a complaint against the title loan company, your first step should be to re-read the contract you signed when you took out the loan. Look for a section that mentions an automatic repayment plan. This is when someone authorizes a lender to take regular payments directly from a bank account or debit card the day a payment is due. It is possible that, buried in the fine print, there is a clause that lets the lender take automatic deductions from your account.
What if you can’t understand the contract because it is written in legal jargon? Hiring a lawyer would probably not be worth it, given that we’re talking about a $100 charge. However, depending on your income, getting free legal help may be an option. LawHelp.org refers people with low and moderate incomes to free or low-cost legal help.
According to the Federal Trade Commission, lenders can’t make recurring automatic debits unless a consumer agrees ahead of time to these transfers from his or her bank account “and then, only after you get a clear disclosure of the terms of the transaction.”
The FTC says the lender must give you a copy of your authorization of the recurring automatic debits. The commission also notes that it is illegal for a lender to require that you repay the loan through pre-authorized automatic transfers.
If it looks like your lender did not follow the rules, then consider making a complaint with the CFPB. To do this, use the submission box online. Go to the category that says “Other consumer loan,” which covers title loans. The agency will forward your complaint to the company and try to get a response from them. The CFPB will also share the information you submit with state and federal agencies that oversee financial products and services.
If the lender did follow all the rules, there’s not much you can do except pay back the loan as quickly as possible. Going forward, I’d recommend avoiding title loans if you can. Some people lose their cars by taking out these loans.
If you’re not making enough money to stay current on your bills from your job, consider starting a small side business for yourself that you can fit into your life around your other responsibilities. There are many possibilities in the freelance economy, ranging from driving for Uber or Lyft to finding other types of gigs on Craigslist, TaskRabbit or Thumbtack. In today’s world, many people need multiple income streams to survive. By earning even a little bit more, you can free yourself of lenders who prey on people who are in a financial crunch.
See related: Study: Payday loans trigger overdraft fees
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Published: May 30, 2016
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