Need cash fast but can’t find anyone who will lend it to you? Have a car with a clear title? Maybe you’ve heard that you can borrow money against that title and get a “Title Loan.” Don’t.

The theory is simple: You borrow money and put up the title to your car as collateral. The sites often promise that you can have cash in hand “in minutes” which sounds quite fast when compared to the days it might take a bank to lend you money. But you will notice a few things missing from the websites. Like what the interest rate of the loan is. Or whether the lender is licensed to operate in your state.

These loans have been around for a while in a variety of forms, but have recently gained popularity as the operators have discovered how lucrative title lending can be. Search the phrase “Title Loans” and watch how many slick sites pop up. Most are fronted with pictures of attractive women, trying to hand you cash through your monitor.

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Many of the title lenders out there charge exorbitant interest rates—yes, it turns out that interest rates are set by law and a lender cannot charge 500 percent APR on a personal loan. At least, not ones that follow the law.

But stories abound of title lenders who charge crazy rates, have little to no documentation, and simply charge whatever they want. And sometimes they “repossess” the collateral whenever they feel like it. And the type of person who has relied on a title loan is usually in no position to do much about it.

In Michigan (and in many other states), these lenders operate outside of the law. Some states have gone so far as to bar the title lenders from repossessing vehicles under these loans. Or telling the lenders they cannot use the courts to enforce the loans. But enforcement is spotty at best. Many of the lenders operate out of distant jurisdictions like islands in the South Pacific. They make enough money from the people who don’t complain that they can afford to lose the profits from those who do.

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And some states like Michigan appear to be confused by the whole process and simply do nothing. The department that oversees consumer protection thinks this ought to be policed by the department that oversees banking. Guess who the banking department thinks ought to be overseeing it?

My advice to you: Avoid title lenders. If you have gotten wrapped up by one, consult a local attorney. There may be ways for you to get out of the situation and still keep your car. Need to borrow money fast? Avoid a title lender. They’re just loan sharks operating under a different name.

Follow me on Twitter: @stevelehto

Hear my podcast on iTunes: Lehto’s Law

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Steve Lehto has been practicing law for 23 years, almost exclusively in consumer protection and Michigan lemon law. He wrote The Lemon Law Bible and Chrysler’s Turbine Car: The Rise and Fall of Detroit’s Coolest Creation.

This website may supply general information about the law but it is for informational purposes only. This does not create an attorney-client relationship and is not meant to constitute legal advice, so the good news is we’re not billing you by the hour for reading this. The bad news is that you shouldn’t act upon any of the information without consulting a qualified professional attorney who will, probably, bill you by the hour.

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