California Title Lending Updates For 2021
California has always been an outlier among the states that offer some type of personal loan. On one hand, California is a progressive state when it comes to different types of loans offered. You can currently take out a short-term payday loan of up to $255. As you would expect, interest rates are high with a cash advance like this. Most people who take out this type of loan would be best served to pay off the loan early to avoid the high APR that accumulates as each day goes by. California is a unique state as most lenders refuse to provide online loans for amounts between $255 and $2500. The reason being, the state has regulations in place which limit the amount of interest for loans between this amount. Most companies that offer car title loans have finance charges well above this limit. Once these new restrictions were put into law they no longer offer loans between this amount as they’re not profitable. With that, we see a few firms who provide online loans(both installment loans and advances with online title loans) between these amounts. They are now required by the Department of Business Oversight to keep finance charges under 36% for online title loans.
Some tite loan amounts are capped at $255 in CA
As is the case in most states, title loan lenders write the bulk of their loans for amounts over $2500. The same is true in California as there are laws that kick in for both car title and payday loan amounts of $255 to $2500. We don’t know the exact numbers and data, but most companies focus a large amount of underwriting within this amount. Consider other factors that come with secured loans, like the amount of paperwork and documents required by the underwriting department. When you see that companies make more money for the higher loan amounts, you can understand why they go for $2,500 and above. Another provision involves loan amounts over 10k. In most cases, these dollar amounts aren’t regulated, which includes installment loans and of course car title loans. But we don’t know what’s going to occur over the next few years.
Stay tuned to what’s happening with car title loan regulations in California
Regulatory changes have always been a reason in determining the future of title loans online. Many states no longer allow short-term borrowing like this. Others have restrictions in place which limit the amount of collateral you can use for funding. As we move through 2021, we expect more legal changes that further limit the amount you can borrow. Take the Golden State for example. A few months ago, there were many bills on the Assembly floor which involved car title loans. Senate Bill 771 and Senate Bill 482 were seeking to reign in installment loan companies. The bills were also looking to regulate firms that allow consumers to use their vehicles as collateral. As of February 2021, those bills are either dead or tabled for this legislative year. AB 539 promised to bring significant changes to the lending industry. This Assembly Bill has passed all legal committees and is now law. This bill has eliminated most loans that offered for amounts under $10,000. It has also severely limited any type of borrowing with interest rates above 36%. A casual reader would see this and think that any company should be able to survive by providing pink slip advances with a rate below 36%! After all, most credit cards are capped at 36%, and they are often seen as having huge finance charges.
This line of thinking does not take into consideration the huge amount of risk most lending companies in CA deal with. Online auto title loans don’t always take into consideration whether someone has bad credit. That means they’re looking more at equity in the vehicle and whether someone has the ability to pay back a car title loan in full. Further, we know of a huge amount of fraud from scammers who apply for online title loans. All it takes is one consumer to get a high-dollar loan only to commit fraud by lying on the application. Other times, a borrower will take a vehicle across the border and the auto title lender is out the full amount of cash they lent.
Loan limits & changes to expect in other states for 2021
It will be interesting to see what happens to title loan companies over the next few months. Not just in a few select states on West Coast but all across the country. We’ve heard new laws being discussed in Arizona and Ohio which would further limit the amount of money someone can borrow. As we’ve seen with the political climate in other industries, we can expect a further move to the left in CA and an increase in regulations. The problem we see now with this bill is a complete lack of lending options for applicants with limited choices. Most reputable companies claim it would be a financial disaster and would no longer finance online title loans. In their place, we would likely see unlicensed companies that aren’t regulated by the DBO. Online offshore lenders who fund car title loans would not be subject to state regulators. This includes tribal companies who claim to have sovereign rights and would not be subject to an individual state’s lending requirements. It will be interesting to see what happens in this type of financing scenario. We expect to have a better understanding of the situation within a few months, stay tuned!