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Car title loans trap low-income families in debt

In December 2014, Paul Gillespie’s wife died of a heart attack. He buried her on a Tuesday. On Saturday, tougher news came: Her landlord called and said she was selling the building, and he and his two teenage daughters had to find a new place to live.

Gillespie has moved. But the bad times follow: the following spring, he has a heart attack, forcing him to take time off from his work as a welder.

“I was short of money. I had just spent $10,000 on a funeral,” Gillespie said. He said he had bad credit and couldn’t get a traditional bank loan.

Then he remembered hearing advertisements for what are called car title loans. It’s a way for people who need a quick cash loan to use their vehicle as collateral. He showed up at one such lender in Danville, central Illinois, near his home.

Half an hour later, Gillespie said he walked through the door with $2,000. But after paying all the interest, Gillespie had shelled out more than $4,000 to pay off the loan.

“I was like, ‘Holy cow, I can’t believe I was so stupid,'” Gillespie said.

Gillespie was not stupid; he was desperate.

Car title lending has only been available in Illinois since 2009. There are 57 companies licensed to provide these loans, but many have multiple locations, resulting in thousands of locations spread across urban communities, suburban and rural.

Thousands of low-income families have increased their debt by taking out these high-interest loans, according to the nonprofit Heartland Alliance.

Here’s how it works: A car title loan doesn’t require the same type of scrutiny as a traditional loan. A borrower applies and hands over the car title if approved. Illinois has no regulations on how interest rates are determined. Each title company can decide what factors to consider when setting up the loan.

Anti-poverty advocates want state lawmakers to cap those interest rates, which they say in Illinois can be as high as 360%.

According to a Freedom of Information Act request filed by WBEZ, records show 64,000 car title loans in Illinois resulted in a repossession, loan write-off, or default in which at least one payment was missed. .

But here is a fuller picture of the impact of these loans.

According to the Illinois Department of Financial and Professional Regulation, the average length of a car title loan is 515 days. The average loan is $1,035 with fees of $2,758.

Always according to the state, as detailed in this report, the average income of borrowers is $26,219 per year. Last year, 68,537 title loans were made; the peak year was 2013 with 100,386. Since 2009, 751,558 loans have been taken out for a total amount of $778 million.

“It’s not just that you’re going to lose hundreds of thousands of dollars on these loans, which you will. But you also run the risk if you can’t afford the loan, you’ll lose your car,” said Jody Blaylock, financial issues policy analyst for Heartland Alliance.

The maximum loan amount that can be taken out at one time is $4,000. According to the Consumer Federation of America, Illinois is one of 16 states with triple-digit interest rates.

Attention to car title loans in Illinois is intensifying. As researchers and advocates watch the widening gap between rich and poor, they highlight the ways in which certain financial practices increase this gap. Places to cash checks, payday loans, court costs, and fines such as parking tickets can keep low-income people and people of color stuck in debt, making it harder to fight against poverty and the creation of wealth.

Several Illinois car title lobbyists declined to comment for this story, and none of the company’s offices returned calls or emails to WBEZ. But a few years ago, the head of the trade group representing car titles and payday loan companies testified before Congress. According to the group, this testimony is that these short-term loans help families in crisis when no one else will give them loans.

But Blaylock said a lower interest rate was crucial.

“Establishing a 36% interest rate cap is critical if we are going to create equity across the state and create opportunity for everyone,” she said.

Legislators introduced the Fair Lending Act in Springfield earlier this year, calling for a 36% cap. The bill did not have enough bipartisan support to get it out of committee.

Illinois State Rep. Christian Mitchell, a Democrat, said the goal now is to reintroduce the bill early next year and, in the meantime, garner support in the regions. of the state that are not traditionally Democratic, but where residents of Republican districts are also struggling. financially.

“There’s a lot of poverty down in the state and the further you go into the suburbs where there are definitely people affected by these loans,” he said.

Natalie Moore is the South Side reporter for WBEZ. Follow her on Twitter at @natalieymoore.