Earlier this month, the Consumer Financial Protection Bureau (CFPB) issued a report analyzing consumer usage and default patterns for certain single-payment vehicle title loans (the “Report”). Vehicle title loans are loans issued to borrowers by non-depository lenders in exchange for a security interest in their vehicles. A unique aspect of vehicle title loans is that “loan approval and amount is primarily based on the vehicle’s value, rather than a credit check and traditional underwriting.” During these transactions, borrowers provide lenders with the title to their vehicle, and although they retain use of the vehicle, lenders have the right to repossess it in the event of a default.
During its study, the CFPB was particularly interested in analyzing vehicle title loan re-borrowing trends. Re-borrowing occurs when borrowers either pay a fee to extend the due date of an initial loan or take out a subsequent loan shortly after repayment. The Report refers to the number of times a loan was re-borrowed as its “loan sequence.” A borrower who repaid his initial loan on the date it was originally due will have had a single loan sequence, whereas a borrower who re-borrowed his loan four times before discontinuing his borrowing will have had a multi-loan sequence.
The Report provided an analysis of vehicle title loans across the following metrics: (1) rates of vehicle title loan re-borrowing, (2) loan sequence length, (3) distribution of vehicle title loans by loan sequence length, (4) changes in loan size during loan sequences, and (5) default and repossession rates.
With respect to re-borrowing rates, the CFPB determined that 83% of vehicle title loans were re-borrowed on the same day a previous loan was repaid. And that number reached almost 90% when analyzing re-borrowing that occurred within sixty days. When analyzing loan sequence length rates, the CFPB broke down the percentage of vehicle title loan sequences by loan number. The CFPB determined that 54-59% of vehicle title loan sequences consisted of at least four loans, whereas 21-26% of vehicle title loan sequences consisted of at least ten loans.
With respect to the distribution of vehicle title loans by loan sequence lengths, the CFPB broke down the percentage of vehicle title loans by the size of the loan sequences that they comprised. The Report concluded that approximately 50% of all vehicle title loans were part of loan sequences that consisted of at least ten loans. In other words, 50% of all vehicle title loans were part of a group of 10+ loans that borrowers took out in connection with an initial loan. Approximately 85% of all vehicle title loans were part of loan sequences that consisted of at least four loans.
When analyzing changes in loan size during multi-loan sequences, the CFPB found that approximately 28-31% of loans increased in size across loan sequences, of which 33-34% ended in default. Multi-loan sequences that decreased in loan size were less likely to default, though when considering multi-loan sequences generally, the CFPB nevertheless observed that approximately 22-25% ended in default, versus 9% of loan sequences consisting of a single loan that ended in default. When analyzing vehicle title loans at the loan sequence level, the CFPB reported that approximately 19-20% of loan sequences resulted in repossession of a borrower’s vehicle.