No Right Turn: Illinois’ Auto Title Loan Industry and its Impact on Consumers

Illinois consumers are increasingly turning to high-cost automobile title loans (title loans) in an attempt to make ends meet, but becoming trapped in debt.

Title loans are one type of high-cost, small-dollar loans available in Illinois. Despite their similarity to payday loans and installment loans, title loans are not subject to the same consumer protections under Illinois state law. Title loan regulations adopted in 2009 created some minimal protections, but they are insufficient to make title loans safe and affordable for consumers. Analysis of the current state of auto title lending in Illinois showed that:

• The vast majority of title loans in Illinois are taken out by low-income people. Nearly three quarters of all title loan borrowers in Illinois have incomes of less than $30,000, and over 90 percent have incomes of less than $50,000.
• The number of title loans issued in Illinois has steadily increased between 2009 and 2013. In 2009, Illinois consumers borrowed an estimated 73,116 title loans. By 2013, that number had increased to 100,698 title loans.
• The annual percentage rate (APR) charged by lenders has decreased slightly, but the average term, principal amount, and total fees have increased significantly. While the average APR decreased from 285 percent to 234 percent, title loans in Illinois now have an average term of 18.6 months with principal amounts of $1,089 and average fees of over $3,000.
• Illinois title lenders made loans to consumers in other states where title loans are illegal. Illinois court records show that Illinois lenders made online title loans to consumers who live out of state, including states where title lending is illegal, and then sued the consumers in Illinois. These findings illustrate that consumers in Illinois need stronger protections for small-dollar loans, including auto title loans.

We recommend that:

• The Consumer Financial Protection Bureau (CFPB) issue strong rules covering high-cost, small-dollar loans, including title loans, to ensure loans are safe and affordable.
• Congress pass legislation instituting a 36 percent cap for all consumer loan products, including title loans.
• The Illinois legislature strengthen the Consumer Installment Loan Act to require stronger ability-to-repay standards, maximum loan terms, and a rate cap of 36 percent APR.
• The Illinois Department of Financial and Professional Regulation (IDFPR) publicly release loan-level data from the state database to allow for a more detailed analysis and monitoring of small-dollar lending in Illinois.
• Financial Institutions create and market affordable small-dollar loans with ability-to-repay standards as alternatives to high-cost, predatory products.

Download the report to learn more about our findings, read stories of Illinois borrowers, and see our full list of recommendations.