Some states are cracking down on a particularly bizarre predatory loan tactic: using a borrower's car title as collateral. Think of them as home equity loans, but for cars. This is really strange from a lender perspective, considering that cars always depreciate, unlike homes which generally appreciate. The trick to making them profitable, however, is to charge obscene interest rates, and ultimately repo the car when borrowers default. Here's an example from the Wall Street Journal:
"I think they should ban it entirely," said Leon Brantley of Hampton, Va., who traded the title to his 2000 GMC Yukon to borrow $1,500 in late 2008 to help pay his rent. After making five $600 monthly payments and not making a dent in the loan's principal, Mr. Brantley fell behind last year, and his lender seized his car. The 31-year-old barber said he lost work as a result and couldn't pay rent or other bills, then ended up in jail for 30 days for missing child-support payments. "It really messed up a lot for me," he said.
In case you were wondering, $600 per month on a $1,500 loan calculates to about a 480% APR.
Read the full story at the Wall Street Journal.