Did auto title loans replace payday loans in Arizona?Posted: Updated:
PHOENIX - Joshua Hernandez and his wife Vanessa have traveled the country visiting as many baseball parks as possible.
“I'm just very enamored with the major leagues in general,” Joshua said.
For their most recent trip last year, they needed some extra spending money.
So they took out an auto title loan which allows consumers to use their car as collateral for a loan.
Joshua and Vanessa's loan was for $663.
But their interest rate? 180 percent!
“What we decided was we were going to treat it like a payday loan to where we would pay the payment, but make a higher than the minimum payment so it would go directly to the principal,” Joshua said.
But what they didn't realize at the time was that nearly all of their extra money actually went towards the next month's interest, not the principal.
“So in essence the balance never goes down,” he said.
Joshua now believes auto title loans are even worse than payday loans, which were outlawed in Arizona more than a year ago.
“But, the most troubling development since payday lending sunset in Arizona is the transformation of payday lenders into car title lenders,” Jean-Ann Fox said.
Fox is with the Consumer Federation of America, an organization that helped get payday lenders banned.
Even though 400 percent interest rates that came with payday loans are gone, Fox says auto title lenders can still charge up to 204 percent interest, and also put one of your most valuable assets on the line.
“So, consumers pay a long time before they eventually default on loans and can lose their vehicle,” Fox said.
Eight months and $1,200 later, the Hernandez family finally managed to pay off their loan.
But, the amount they repaid is nearly twice what they borrowed.
It's a hard lesson, and say that, even for baseball, they'll never take out a title loan again.
“I caution anybody who tried to do the same thing that we did,” Vanessa said. “It's just a warning don’t do it!”
The Arizona Department of Financial Institutions tells 3 On Your Side there are about 470 auto title loan companies operating in Arizona.
That’s down from 670 payday loan stores before the ban.
While some states have banned title loans, we’re told there are no plans for that to happen in Arizona.