Title Lending’s Big Question: Dude, Where's My Car?
In a new paper on title lending with Katie Fritzdixon and Jim Hawkins, we report data from a survey of over 400 title lending customers across three states. To introduce this work, we wanted to start off by talking about the important issues that title lending raises. The biggest question, by far, is how many title borrowers end up losing their car?
Academics, consumer advocates, and policymakers have focused on title borrowers' risk of losing car and hence their way to work, sometimes exclusively, as a reason for restricting title lending. To figure out how many borrowers are losing their only way to get to work, we must unpack how many borrowers are losing their cars and how many of those have no other way to get to work. The best answer to the first question is gleaned from reports from state regulators. Several states require title lenders to provide information about their operations. The repossession rates of a few states’ lenders are summarized in the table below:
While backing out precise repossession rates from these figures is difficult, it appears that an educated estimate of--at most--around 10% of new title loans result in the car being repossessed. Thus, at least 90% of borrowers don’t lose their car.
For data on the second question—whether the vehicle borrowers used to secure the loan was their only means of getting to work—we turn to our survey. We ask customers the following question:
|If you lost the vehicle that you used to get your loan, how would you get to work?|
|Do not work outside the home||12.16%|
|Use public transportation||14.14%|
|Another vehicle I own||40.20%|
|Walk to work||8.93%|
|Rides from friends/family||17.37%|
|Buy a new car||8.68%|
|No other way||14.64%|
|Number of Observations||403|
So, based on our survey, around 15% of people using title loans are using their only means of getting to work as collateral for the loan. Assuming that our subjects are representative of title loan customers generally and assuming that people losing their cars have the same likelihood of being in that 15% as all customers, it appears that only around 1.5% of borrowers using title loans will end up losing their only way to get to work. These assumptions may be heroic, but the data we present here is literally the only data generated by academics available to answer this question--a question clearly at the heart of the debate over title lending. Based on the best estimates available, it appears that the frequency with which title borrowers end up stranded at home and unable to get to work is quite minimal.
We don’t think the risk of losing one’s only way to get to work is the real problem with title loans, and we will turn in subsequent posts to the other risks title borrowers face.
Car graphic from Shutterstock.