California Car Auto Title Loan Laws
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CALIFORNIA FINANCIAL CODE
Auto title loans made in California in which the consumer is allowed to drive their automobile should be made in amounts of $2501 and above. If you plan to loan 70% or less of the WHOLESALE Kelly Bluebook value, then the minimum wholesale value would be $3573.00.
Q: What licenses are available in California?
There are two state lending licenses. Loans made under the Autopawn Loan program are made pursuant to a California Pawnbrokers License and loans made under the Consumer Loan Program are made pursuant to a California Department of Corporations Finance Lenders License.
Q: How much can a consumer borrow?
A: Generally you loan a percentage of the wholesale value of the vehicle, and take various factors into consideration such as the year, make, model, mileage, and condition of the vehicle. If the consumer would like to keep the car and drive it, you will also consider their debt to income ratio as well as their ability to repay the loan and make the monthly payments.
Q: What if the car is not paid off?
A: To make a loan, the car must be paid off - or almost paid off. For example, if the consumer owes less than 25% of the wholesale value of the vehicle, the consumer may still qualify for a loan under the Autopawn Loan Program.
Q: What if the consumer has lost their title?
A: That's OK, you can still approve the consumer for a loan even if they do not have the
Title. However, it must be a California registered vehicle, it must be paid off, and
they must be the registered owner of the vehicle.
Q: What if the vehicle is not registered in the loan applicant's name?
A: If the consumer has the title to the vehicle and it was signed off properly by the previous owner, the consumer is still eligible for a loan.
Q: What if it is an out of state title?
A: Generally the consumer is still eligible for an Autopawn loan with an out of state title as long as the vehicle is paid off and the name of the consumer appears on the title as the registered owner of the vehicle.
Regarding autopawn loans, after looking into the situation, officials at the Department of Corporations, which regulates financial transactions, determined that the loans are governed by the California Finance Lenders Law.
The law, part of the state Financial Code, applies to secured loans of relatively small amounts that are not regulated by other statutes.
The loans do not fall under California's loose definition of predatory lending, which applies primarily to loans that are false or misleading.
Usury laws are not a factor. According to the state attorney general's office, these laws aren't applicable to lending institutions such as banks, pawnbrokers and other finance companies.
The lenders are utilizing a section of the California Finance Lenders Law that permits virtually unlimited interest rates for certain secured loans higher than $2,500. In this case, car-title lenders focused on sections 22303 and 22304 of the California Finance Lenders Law, the state's grab bag for regulating small- scale lenders.
The first section lays out rules for interest rates charged by licensed lenders. The second stipulates that these rules don't apply to any loan worth more than $2,500.
"We spoke to lawyers about this," said Gladstone at Growth Resource Group, based in San Juan Capistrano. "They determined that this allows us to charge any interest rate the market will bear for loans over $2,500."
He says his firm was the first to offer car-title loans in California in 1995. Competitors soon showed up, Gladstone says, creating a robust market in which interest rates can vary from 60 percent to 120 percent.
He estimates the size of the California car-title-loan market at about $20 million. It's limited, Gladstone says, because lenders in this state must offer larger loans than elsewhere to be profitable, which requires customers in turn to own vehicles of commensurate value.
In other states, where car-title loans are typically for under $1,000, it's common for junkers to be used as collateral.
Gladstone acknowledges that he operates in a gray area of the law. But he believes he's done nothing wrong.
"The proper interpretation of the Financial Code," he said, "is that if they don't prohibit it, it must be legal."
William Wood, who oversees the Financial Code as California's commissioner of corporations, sees things a little differently. "The law has a lot of things in it that don't get tested or don't get brought up for decades," he said. "That's finally happening now."
Dimitry Pertsovsky and Michael Sklyar ran a string of Bay Area pawn shops before deciding last year to get into the lucrative field of high-interest car- title loans. They said their firm, BSL Financial Services in Redwood City, now has about $1 million in active loans. Typically, the loans are made without credit checks or other financial safeguards.
In California, lenders say, the average car-title loan is for $4,000.
Wood, the commissioner of corporations, said he, too, is looking at a rate cap and amending the Finance Lenders Law. "That $2,500 amount has been set in statute for about 25 years," he noted. "At the very least, we'd want to look at something that changes that." He said he's already reserved a bill number for his legislation, SB120, to reflect the sky-high interest rates that California car-title lenders now charge.
Nearly a third of all Californians obtaining high-interest car-title loans -- typically without credit checks or other financial safeguards -- end up defaulting, lenders say.