Even with a full-time job, Shanell White found herself in financial straits. Her 12-year-old car needed new brakes. On top of rent and college courses, she became legal guardian for her infant niece, which meant diapers, baby food and $300 a month for day care.
With no savings and poor credit, the single Sacramento resident couldn't qualify for a conventional bank loan, and her monthly paycheck was stretched to the snapping point.
"It was an emergency. I had no savings and was going negative every month," said White, 38, a program specialist for the California Department of Corrections and Rehabilitation.
Desperate for cash, she borrowed against her only asset: her car. Answering an online ad in January 2009, White took out a $3,900 loan on her aging white Lexus SUV, signing a three-year contract for monthly payments of $290. In a box above her signature, the loan's terms were plainly stated: An annual percentage rate of 79.9 percent and total finance charges -- over three years -- of $6,541.44.
By the time her 36-month contract was nearing completion, White had paid more than $11,000, including an extra $1,100 in fees to get her Lexus back after it was repossessed for several late payments. But when she went to make her final payment, White was stunned to discover that -- with interest, penalties and a balloon payment -- she still owed $3,714. She declined to pay. Ultimately, the car was repossessed a second time, in August 2012.
White is now suing the loan company, Wilshire Commercial Capital of Los Angeles. Efforts to get comment from a Wilshire representative were unsuccessful.
A growing number of title loan companies such as Wilshire are charging high interest rates to consumers who are desperate for cash. California is one of a minority of states that allow such loans at all.
Nearly 100 companies with multiple locations are licensed in California to issue auto title loans -- and the number is rising, according to the state Department of Business Oversight. Last year, there was a 35 percent jump in the number of lenders offering title loans, from 59 companies in 2011 to 80. So far in 2013, 19 more have been licensed.
In 2011, the most recent year for DBO data, Californians took out 38,148 auto title loans, averaging $3,500 each.
Their pitch is typically the same: Get fast cash with no credit check, based on the value of your vehicle. Bad credit or bankruptcy? Not a problem. No long-term job history? No worries.
Consumers hand over their cars' pink slips as collateral. If they default, their vehicle is repossessed and sold by the lender.
"It's outright predatory lending," said Bryan Kemnitzer, a San Francisco consumer attorney, who started getting complaints several years ago about Californians losing their cars to auto title lenders.
What they are: Short-term, high-interest loans that use your vehicle as collateral.
How they work: Typically, borrowers must own the vehicle outright. No credit checks and minimal proof of income are required. The borrower hands over the vehicle's pink slip until the loan is repaid.
Typical borrower: Takes out a 30-day loan of $1,042 that's renewed eight times, paying back $3,391 -- triple the amount borrowed.
Where offered: 29 states and Washington, D.C., do not allow auto title loans or severely limit interest rates. A number of online lenders operate offshore or on Indian tribal lands, where they're not subject to U.S. regulations.