In December, 2014, Paul Gillespie’s wife died of a heart attack. He buried her on a Tuesday. On Saturday came more hard news: His landlord called and said she was selling the building, and he and his two teenage daughters had to find a new place to live.
Gillespie moved. But the bad times kept coming: The following spring, he had a heart attack, forcing him to take a leave from his job as a welder.
“I was running low on money. I had just spent $10,000 on a funeral,” Gillespie said. He said he had bad credit and couldn’t get a traditional bank loan.
Then, he remembered hearing ads for something called car title loans. It’s a way for people who need a quick cash loan to use their vehicles as collateral. He showed up at one of those lenders in Danville, in central Illinois, close to where he lives.
A half hour later, Gillespie said he walked out the door with $2,000. But after paying all the interest, Gillespie had shelled out more than $4,000 to pay the loan back.
“I was like, ‘Holy cow, I can’t believe I was this stupid,’” Gillespie said.
Gillespie wasn’t stupid; he was desperate.
Car title lending has been available in Illinois just since 2009. There are 57 companies licensed to do these loans but many have multiple locations resulting in thousands of locations spread out in urban, suburban, and rural communities.
Thousands of low-income families have increased their debt by taking out these high-interest loans, according to the nonprofit Heartland Alliance.
Here’s how it works: A car title loan doesn’t require the same type of scrutiny as a traditional loan. A borrower applies and hands over the car title if approved. Illinois doesn’t have regulations about how interest rates are determined. Each title company can decide what factors to consider in setting the loan.
Anti-poverty advocates want state lawmakers to put a cap on those interest rates, which they say in Illinois can run as high as 360 percent.
According to a Freedom of Information Act request filed by WBEZ, records show that 64,000 car title loans in Illinois have resulted in repossession, a loan write-off, or default in which at least one payment was missed.
But here’s a fuller picture of the impact of these loans.
According to the Illinois Department of Financial and Professional Regulation, the average car title loan length is 515 days. The average loan is $1,035 with $2,758 fees.
Also according to the state, as detailed in this report, the average income of borrowers is $26,219 a year. Last year, there were 68,537 title loans taken out; the peak year was in 2013 with 100,386. Since 2009, 751,558 loans have been taken out with a total amount of $778 million.
“It’s not just that you’re going to lose hundreds of thousands of dollars to these loans, which you will. But you also run the risk if you can’t afford the loan, you’ll lose your car,” said Jody Blaylock, a policy analyst on financial issues for Heartland Alliance.
The maximum loan amount that can be taken out at once is $4,000. According to the Consumer Federation of America, Illinois is one of 16 states with triple-digit interest rates.
Attention to car title loans in Illinois is intensifying. As researchers and advocates watch the gap grow between the wealthy and the poor, they’re highlighting ways some financial practices increase that gap. Check cashing places, payday lending, court fees, and fines from things like parking tickets can keep low-income and people of color trapped in debt — making it harder to fight poverty and build wealth.
Several Illinois car title lobbyists declined to comment for this story, and none of the corporate offices returned WBEZ calls or emails. But a couple of years ago, the head of the trade group representing car title and payday lending firms testified before Congress. The group’s take in that testimony is that these short-term loans help families in crisis when no one else will give them loans.
But Blaylock said a reduced interest rate is crucial.
“Establishing a 36 percent interest rate cap is critical if we want to build equity across the state and build opportunity for everyone,” she said.
Lawmakers did introduce the Fair Lending Act in Springfield earlier this year, calling for a 36 percent cap.The bill didn’t have enough bipartisan support to make it out of committee.
Illinois state Rep. Christian Mitchell, a Democrat, said the goal now is to reintroduce the bill early next year, and in the meantime, to gather support in areas of the state that are not traditionally Democrat, but where residents in Republican districts also struggle financially.
“There’s a lot of poverty downstate and the further you get out in the suburbs where there are certainly people affected by these loans,” he said.