With new regulation on car title loans - consumers can expect to see caps on the amount of loans and the elimination of balloon payments.
The new regulation was announced Monday, March 23, 2009. And will go into effect April 1, 2009. The details of the regulation go as follows:
- A $4,000 limit on car title loans.
- Restrictions on loans of any amount that would result in monthly payments exceeding 50 percent of the consumers' gross monthly income.
- It will be prohibited for lenders to give loans with balloon payments, thus allowing consumers to repay the loan in equal installments - much like traditional car loans.
- Car title loans can be refinanced, but only if the principal on the loan has been paid down by at least 20 percent.
- Illinois title loans that are refinanced cannot exceed the total outstanding on the original loan.
In order to enforce these regulations. The state of Illinois will collaborate with car title loan businesses to create a statewide database of title loans. This extra regulation maybe enforced with stiff fines if companies do not meet these terms, possibly eliminating seedy, unethical title loan businesses. The regulation could also cause more cost passed onto customers by title loan companies forced to comply. Either way, the new regulation is incredibly progressive by making title loans a safer and more feasible loan option for people with bad credit or no credit.
Another stipulation for title loan companies will be to provide consumers with pamphlets from the Illinois Department of Financial and Professional Regulation. These pamphlets will have information outlining options for debt management as well as debtors' rights and responsibilities.
Senior executive at MaxCash Title Loans, Luke Tayler stated,"We have eagerly awaited for regulation by states like Illinois. It is hard for us to compete with other title loan businesses that have predatory practices in their business plan."
Brent Adams, deputy secretary of the department, said the new rules are designed to strengthen 2001 regulations on loans of up to 60 days. Adams said many lenders evaded the rules by extending the term. The new regulations have closed that loophole for business models that take advantage of consumers and give the industry a bad name.
The gap in the regulation has allowed for some title loan businesses to act to aggressively. It has tarnished the image of a new & emerging industry. Adams said, the old terms have caused many consumers to be "trapped in a cycle of debt."
"We certainly hope that we will find consumers able to eventually pay off their loans," Adams said. "They will still be expensive forms of debt compared to other debt. But they will have a light at the end of the tunnel."
This regulation levels the playing field for companies like MaxCash that have a customer-oriented business plan and longer goals for success.
To conclude Tayler said,"People have to understand that government acts slower because there is more bureaucracy involved. For the economy to function people need to borrow, but a lot of consumers have bad credit. The government understands this, both on a state level and federal level. Title loan customers should feel more safe and secure. There are now more practical loan solutions for people with bad credit. They can now look at title loans as a second chance and utilize them to get their act together."
As a representative of the car title loans industry, http://maxcashtitleloans.com has long awaited the government to intervene and make title loans a more acceptable alternative to traditional loans.
