The Attorney General provides Consumer Alerts to inform the public of unfair, misleading, or deceptive business practices, and to provide information and guidance on other issues of concern. Consumer Alerts are not legal advice, legal authority, or a binding legal opinion from the Department of Attorney General.
The ads offer an easy way to get through a tough time while promising that you can keep your vehicle. You simply complete a short form and provide your vehicle title, and you will quickly get cash. You often don’t need to show proof of employment or be subject to a credit check.
Auto title loans that involve the lender taking physical possession of the borrower’s vehicle title are risky and not permitted by Michigan’s lending laws. These loans are risky because your title is the document that proves who owns the vehicle, which you don’t get back until the lender is satisfied that you’ve paid off the loan. Additionally, most lenders require installation of a Global Positioning System (GPS) on the vehicle and some even require installation of a starter interrupt device and that you surrender an extra set of keys.
These short-term, high-interest loans are frequently a fast road to losing your automobile.
Under Michigan’s usury law, auto title lenders cannot charge more than 7% annual interest on their loans. To exceed this usury limit, the lender needs to obtain a license under one of Michigan’s specific lending laws and follow all of that law’s requirements. The interest rates and fees the lender may charge under these specific lending laws are still capped at amounts much lower than most auto title lenders actually attempt to charge. For example, an auto title lender that claims to be operating under the Pawnbrokers Act must obtain a pawnbroker license and may only charge up to 36% annual interest plus a usage fee of $1 per month. Or an auto title lender that claims to be operating under the Regulatory Loan Act must obtain that license and may only charge up to 25% annual interest plus specified processing, bounced check, and other fees. Any auto title lender charging over these amounts should be avoided and reported to the Attorney General.
Michigan consumers who go online or respond to national advertising may find auto title lenders who often charge an average of 25% interest per month to finance the loan. That translates into an annual interest rate of 300 percent—clearly in violation of Michigan law! The annual percentage rate on these loans could be even higher, depending on additional fees that the lenders may require. For example, if you borrow $500 for 30 days, you could have to pay, on average, $125 plus the original $500 loan amount—$625 plus additional fees—within 30 days of taking out the loan. Additional fees may include processing fees, document fees, late fees, loan origination fees, title fees, and lien fees.
When you can’t pay off the loan in the typical 30‑day to six-month period, the lender may offer to “roll over” the loan into a new loan. But the roll over process always adds fees and interest to the amount you originally borrowed. Before you know it, you are over your head in debt with no way to get out. The lender will repossess your vehicle, made much easier if they already have your vehicle title and have installed a GPS device telling them exactly where the vehicle can be found. The lender may even have keys or a means to simply turn your vehicle off.
For information to consider when you apply for an auto title loan, alternatives to auto title loans, and additional protections for military consumers, see the Federal Trade Commission’s Car Title Loans consumer information.
Complaints about auto title loans should be directed to the Attorney General's Consumer Protection Division:Consumer Protection Division