Screw U: How For-Profit Colleges Rip You Off

The for-profit college industry makes a killing while handing out expensive degrees that fizzle in the real world.

Alex Nabaum

The folks who walked through Tressie McMillan Cottom's door at an ITT Technical Institute campus in North Carolina were desperate. They had graduated from struggling high schools in low-income neighborhoods. They'd worked crappy jobs. Many were single mothers determined to make better lives for their children. "We blocked off a corner, and that's where we would put the car seats and the strollers," she recalls. "They would bring their babies with them and we'd encourage them to do so, because this is about building motivation and urgency."

McMillan Cottom now studies education issues at the University of California-Davis' Center for Poverty Research, but back then her job was to sign up people who'd stopped in for information, often after seeing one of the TV ads in which ITT graduates rave about recession-proof jobs. The idea was to prey on their anxieties—and to close the deal fast. Her title was "enrollment counselor," but she felt uncomfortable calling herself one, because she quickly realized she couldn't act in the best interest of the students. "I was told explicitly that we don't enroll and we don't admit: We are a sales force."

After six months at ITT Tech, McMillan Cottom quit. That same day, she called up every one of the students she'd enrolled and gave them the phone number for the local community college.

With 147 campuses and more than 60,000 students nationwide, ITT Educational Services(which operates both ITT Tech and the smaller Daniel Webster College) is one of the largest companies in the burgeoning for-profit college industry, which now enrolls up to 13 percent of higher-education students. ITT is also the most profitable of the big industry players: Its revenue has nearly doubled over the past seven years, closing in on $1.3 billion last year, when CEO Kevin Modany's compensation topped $8 million.

To achieve those returns, regulators suspect, ITT has been pushing students to take on financial commitments they can't afford. The Consumer Financial Protection Bureau is looking into ITT's student loan program, and the Securities and Exchange Commission is investigating how those loans were issued and sold to investors. (Neither agency would comment about the probes.) The attorneys general of some 30 states have banded together to investigate for-profit colleges; targets include ITT, Corinthian, Kaplan, and the University of Phoenix.

A 2012 investigation led by Sen. Tom Harkin (D-Iowa) singled out ITT for employing "some of the most disturbing recruiting tactics among the companies examined." A former ITT recruiter told the Senate education committee that she used and taught a process called the "pain funnel," in which admissions officers would ask students increasingly probing questions about where their lives were going wrong. Properly used, she said, it would "bring a prospect to their inner child, an emotional place intended to have the prospect say, 'Yes, I will enroll.'"

For-profit schools recruit heavily in low-income communities, and most students finance their education with a mix of federal Pell grants and federal student loans. But government-backed student loans max out at $12,500 per school year, and tuition at for-profits can go much higher; at ITT Tech it runs up to $25,000. What's more, for-profit colleges can only receive 90 percent of their revenue from government money. For the remaining 10 percent, they count on veterans—GI Bill money counts as outside funds—as well as scholarships and private loans.

STUDY HAUL

How for-profit schools leave their students high and dry.

96% of students at for-profit colleges take out loans. 13% of community college students, 48% of public college students, and 57% of nonprofit private college students do.

For-profit colleges enroll 13% of higher-education students but receive 25% of federal student aid.

The 15 publicly traded for-profit colleges receive more than 85% of their revenue from federal student loans and aid.

42% of students attending for-profit two-year colleges take out private student loans. 5% of students at community colleges and 18% at private not-for-profit two-year colleges do.

1 in 25 borrowers who graduate from college defaults on his or her student loans. But among graduates of two-year for-profit colleges, the rate is 1 in 5.

Students who attended for-profit schools account for 47% of all student loan defaults.

Sources: Sen. Harkin, Consumer Finance Protection Bureau, Education Sector

Whatever the source of the funds, the schools' focus is on boosting enrollment. A former ITT financial-aid counselor named Jennifer (she asked us not to use her last name) recalls that prospects were "browbeaten and hassled into signing forms on their first visit to the school because it was all slam, bam, thank you ma'am." The moment students enrolled, Jennifer would check their federal loan and grant eligibility to see how much money they qualified for. After students maxed out their federal grants and loans, there was typically an outstanding tuition balance of several thousand dollars. Jennifer says she was given weekly reports detailing how much money students on her roster owed. She would pull them from class and present them with a stark choice: get kicked out of school or make a payment on the spot. For years, ITT even ran a (now discontinued) in-house private loan program, known as PEAKS, in partnership with Connecticut-based Liberty Bank, with interest rates reaching 14.75 percent. (Federal student loans top out at 6.8 percent.)

Jennifer, who had previously worked at the University of Alabama, says she felt like a collection agent. "My supervisors and my campus president were breathing down my neck, and I was threatened that I was going to be fired if I didn't do this," she says. Yet she knew that students would have little means to get out from under the debt they were signing up for. Roughly half of ITT Tech students dropped out during the period covered by the Harkin report, and the job prospects for those who did graduate were hardly stellar. Even though a for-profit degree "costs a lot more," Harkin told Dan Rather Reports, "in the job market it's worth less than a degree from, say, a community college."

Jennifer says the career services office at her campus wasn't much help; students told her they were simply given a printout from Monster.com. (ITT says its career counselors connect students with a range of job services and also help them write résumés, find leads, and arrange interviews.) By the time she was laid off, Jennifer believed the college "left students in worse situations than they were to begin with."

It's not just whistleblowers who are complaining about ITT. There's an entire website,myittexperience.com, dedicated to stories from disappointed alumni. That's how we found Margie Donaldson, a 38-year-old who says her dream has always been to get a college degree and work in corporate America: "Especially being a little black girl in the city of Detroit, [a degree] was everything to me."

Donaldson was making nearly $80,000 packing parts at Chrysler when the company, struggling to survive the recession, offered her a buyout. She decided to use it to get the college degree that she never finished 13 years before. Five years later, she is $75,000 in debt and can't find a full-time job despite her B.A. in criminal justice from ITT. She's applied for more than 200 positions but says 95 percent of the applications went nowhere because her degree is not regionally accredited, so employers don't see it as legitimate. Nor can she use her credits toward a degree at another school. Working part time as an anger management counselor, she brings in about $1,400 a month, but there are no health benefits, and with three kids ages 7, 14, and 18, she can barely make ends meet. She has been able to defer her federal student loans, but the more than $20,000 in private loans she took out via ITT can't be put off, so she's in default with 14.75 percent interest—a detail she says her ITT financial-aid adviser never explained to her—and $150 in late fees tacked on to her balance each month. Donaldson says she has tried to work out an affordable payment plan, but the PEAKS servicers won't agree until she pays an outstanding balance of more than $3,500—more than double her monthly income. "It puts me and my family, and other families, I'm sure, in a very tough situation financially," she says.

Donaldson says she didn't understand how different ITT was from a public college. If she had attended one of Michigan's 40-plus state and community colleges, her tuition would have been roughly one-third of what it was at ITT. Now, she says, all that time and money feels wasted: "It's almost like I'm like a paycheck away from going back to where I grew up."

 Article Source:  http://www.motherjones.com/politics/2014/01/for-profit-college-student-debt

'One Ring' Cell Phone Scam Sweeping Country: $9.84 credit card charges

Better Business Bureau is warning cell phone users about the ''One Ring'' scam and a new credit card scam.

It's called the "One Ring" scam, because the scammer's program computers to send thousands of calls to random cell phone numbers, ring once, and then disconnect. The scammers then hope you are curious enough about the call that you return the call right away.

"As yet, we have not had any complaints filed but given how rapidly this scam is spreading and growing across the country our opinion is it won't be long." said Steve J. Bernas, president and CEO of the Better Business Bureau serving Chicago and Northern Illinois.

Bernas.

Consumers who have been duped by these calls report that they are coming from the Caribbean Islands, including Grenada, Antigua, Jamaica, and the British Virgin Islands. If a person thinks they may have fallen for this scam, they should immediately alert their cell phone carrier and keep an eye on their cell phone bill. The earlier they document the fraud the better their chances of having some or all of the charges removed.

Bernas added, "To be as safe as possible the best thing to do if your phone rings and it's an international number you don't recognize don't answer and don't call back"

Credit card charges of $9.84 to generic websites may be scam, BBB warns

In the aftermath of the massive holiday data breach that effected Target and a number of other major retailers, consumers are now faced with yet another reason to be concerned about the safety of their credit cards.

Reports are surfacing that consumers are finding unauthorized charges of $9.84 on their statements. The business that levied the charge claims that the fee is for "customer support" and it may appear on the statement as one of many different websites. It appears their plan is fly under the radar when they hit individual accounts.

"These individuals are aware that small charges under ten dollars often go un-noticed, which would not be the case for larger amounts. For example, in the hundreds of dollars," said Steve J. Bernas, president and CEO of the Better Business Bureau serving Chicago and Northern Illinois. "This fraud relies on consumers being a little careless and not closely examining their statements."

Bernas noted, "It is possible that some of the cards that have been hit may be the result of the data stolen in the holiday breach. However, authorities are still investigating that possibility."

Victims of this fraud report that, when they've accessed the website listed on their statement, they were given a customer support phone number and email address. After calling the number, they were told that the charge would be removed. However, the only way that consumers can be certain that they have taken positive steps to protect themselves is to contact their card issuer regarding the suspected fraud and follow their recommendations.

The Better Business Bureau suggests consumers:

• Request a new card.
• Place a fraud alert on your credit file. The Federal Trade Commission has easy to follow instructions on its website.
• Closely monitor all of your accounts.

For more information on credit card fraud and Identity Theft visit www.bbb.org.

Article Source: http://abclocal.go.com/wls/story?section=resources&id=9412370

Republicans Just Won the Food Stamp War

Congress is set to approve $9 billion in cuts to the food stamp program even as a record number of Americans live in poverty.

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House Speaker John Boehner (R-Ohio). James Berglie/ZUMA Wire/ZUMAPress

On Wednesday morning, Republicans won a years-long battle over whether to slash or spare food stamps when the House passed the farm bill, a $500 billion piece of legislation that funds nutrition and agriculture programs for the next five years.

The farm bill has been delayed for more than two years because of a fight over cuts to the food stamp program, which is called the Supplemental Nutrition Assistance Program (SNAP). Last June, Speaker of the House John Boehner (R-Ohio) forced a vote on a bill that would have cut $20 billion from SNAP. But conservatives said the cuts were not deep enough, Democrats said they were far too deep, and the bill failed, 234-195. That September, House Republicans drafted new legislation slashing $40 billion from the food stamp program. That billpassed the House with Republican votes only. After months of negotiations with the Democrat-controlled Senate, which wanted much lower cuts of around $4 billion, the House finally passed a farm bill 251-166 Wednesday that contains a "compromise" $9 billion in reductions to the food stamp program.

Both the Senate and President Barack Obama are expected to approve the legislation.

Here's why the compromise level of cuts is a Republican win: In addition to the $9 billion in food stamp cuts in this five-year farm bill, another $11 billion will be slashed over three years as stimulus funding for the program expires. The first $5 billion of that stimulus money expired in October; the rest will disappear by 2016. In the months since the first $5 billion in stimulus funding was cut, food pantries have been struggling to provide enough food for the hungry. Poverty remains at record high levels, and three job applicants compete for every job opening.

And yet, despite the $5 billion in cuts that already happened and the guarantee of $6 billion more, Republicans succeeded in getting their Democratic peers to cut food stamps further. This is the first time in history that a Democratic Senate has even proposed cutting the program. Now the upper chamber is expected to pass cuts twice the level it approved last year.

"It's a net loss for Democrats," Rep. Raul Grijalva (D-Ariz.), co-chair of the Congressional Progressive Caucus, tells Mother Jones. "It's absolutely a GOP win," agrees a House Democratic aide.

How did the GOP do it? In November, Dems said that Boehner was interfering with House-Senate negotiations on the farm bill, rejecting proposed legislation that contained shallower food stamps cuts. (Boehner's office denies this.)

But Dems deserve much of the blame, the Democratic aide says. Last year, House liberals were scheming to get progressives to vote against any farm bill that contained SNAP cuts. The idea was that if enough progressives voted no along with the House conservatives who think the cuts are too low, Democrats could defeat the bill. In that case, food stamp funding would be preserved at current levels. A "$9 billion [cut] is too much…It hits in the gut," Rep. Gwen Moore (R-Wis.) told Mother Jones earlier this month.

When the final bill came up for a vote in the House, the Congressional Progressive Caucus advised its 76 members to vote against the bill. But not enough Dems voted to block the cuts. One hundred three Democrats voted against the farm bill, but 89 voted in favor. If 43 more Democrats had voted no, the farm bill would have failed. "Dems are…complicit in changing [the] law, when they could just [block the bill] and let that status quo continue," the Democratic aide says.

Democrats in the House and Senate agreed to cut nutrition aid for poor Americans because they "have shifted to the right on SNAP politically," the staffer adds. "If Dems were as absolutist as the tea party, this bill would be dead on arrival and SNAP would continue as is."

But the assault on the food stamp program "could have been much, much worse," argues Ross Baker, a professor of political science at Rutgers University. Stacy Dean, the vice president for food assistance policy at the nonprofit Center on Budget and Policy Priorities (CBPP), agrees. Democrats succeeded in stripping many draconian GOP provisions from the bill. Republicans wanted to impose new work requirements on food stamp recipients; allow states to require drug testing for food stamps beneficiaries; ban ex-felons from ever receiving nutrition aid; and award states financial incentives to kick people off the program. None of those measures were in the final legislation, Dean notes.

The cuts to the food stamp program come from closing a loophole that lawmakers on both sides of the aisle agreed needed to be addressed. A household's level of monthly food stamps benefits is determined by how much disposable income a family has after rent, utilities, and other expenses are deducted. Some states allow beneficiaries to deduct a standard utility charge from their income if they qualify for a federal heating aid program called the Low Income Home Energy Assistance Program, even if they only receive a few dollars per year in heating aid. The arrangement results in about 850,000 households getting a utility deduction that is much larger than their actual utility bill. Because the deduction makes these families' disposable income appear to be lower than it actually is, they get more food stamp money each month. The farm bill that passed the House on Wednesday saves $9 billion by closing that loophole.

The savings from closing the heating aid loophole could have been returned to the food stamp program. Instead, Republicans succeeded in prodding Dems to accept $9 billion in new cuts on top of the $11 billion in expiring stimulus funds. That extra $9 billion in cuts means that close to a million households will see their benefits slashed by about $90 a month—enough to pay for a week's worth of cheap groceries for a family of four.

Article Source:   http://www.motherjones.com/politics/2014/01/republicans-won-food-stamps-farm-bill

Congressmen Defend Abusive Payday Lending Industry

In Twist, Attacks Justice Department Investigation

Rep. Darrell Issa (R-CA)

CREDIT: EVAN VUCCI/ AP

The payday lending industry is infamous for providing 12 million Americans each year with short-term loans that end up costing an average of more than 138 percent in interest and fees. But as the U.S. Department of Justices moves to crack down on those lenders who have illegally taken billions from the checking accounts of consumers, two powerful U.S. Congressmen are going to bat for the industry, a letter obtained by ThinkProgress reveals.

Each year, millions incur long-term debt by taking out a short-term loan that’s intended to cover borrowers’ expenses until they receive their next paychecks. Most take out nine repeat loans per year with an interest rate as high as 400 percent. Forty-four percent of borrowers ultimately default, even after paying back their loans several times over, and thus are pushed ever closer to poverty. Critics have called the practice “legalized loan sharking” and describe the industry as “bottom feeders.” In recent years, major banks have also joined in the practice.

In recent weeks, the U.S. Department of Justice began to take aim at the big banks that illegally help payday lenders rip off consumers. “Operation Choke Point” is a massive investigation into whether banks help payday lenders illegally siphon billions of dollars from consumers’ checking accounts in exchange for a fee. Some banks, which offered loans of their own, recently announced they would get out of the payday lending business entirely to avoid a separate regulatory crackdown.

But rather than cheer this consumer-friendly move, two powerful Congressmen are moving to stop it. House Oversight Committee Chairman Darrell Issa (R-CA) and Subcommittee on Economic Growth, Job Creation and Regulatory Affairs Chairman Jim Jordan (R-OH) sent a letter to Attorney General Eric Holder on January 8, accusing the Justice Department of “using its civil investigative power” to “inappropriately target two lawful financial services: third-party payment processing and online lending.”

They wrote:

The Department has consistently stated that its goal is to combat mass-market consumer fraud. However there is ample evidence that the true target of Operation Choke Point is the online lending industry, not actual frauders. Initial press reports of the Department’s investigations support such an understanding.

As their “strongest evidence,” Issa and Jordan cite a press release by one bank that cited inquires that were “part of an industry-wide DOJ investigation” of electronic financial transaction services “provided to payday lenders.” They demand any documents and communications, dating back to 2011, relating to the operation.

Since he became chairman of the House Oversight Committee after the 2010 elections, Issa has consistently used the committee to defend the interests of corporations. In December 2010, he sent a letter to scores of companies and trade associations asking for their “assistance in identifying existing and proposed regulations that have negatively impacted job growth in your members’ industry” and “suggestions on reforming identified regulations and the rulemaking process.” And weeks before that, he promised that if he became chairman, ““I won’t use it to have corporate America live in fear that we’re going to subpoena everything.”

Article Source:  http://thinkprogress.org/economy/2014/01/27/3209121/issa-payday-lenders/

Getting Credit Card From Your Local Bank May Be Best Bet

Assuming you don’t keep your money under your mattress, you may have noticed that the flow of credit card offers from banks where you have accounts has been getting heavier. Rather than chuck these offers unopened, it could pay to take a look.

Some of the nation’s biggest banks are focusing on building up their credit card portfolios by getting their plastic into the wallets of existing customers. To make the sale, they’re revamping their cards and offering extra rewards.

“I am not going to be satisfied until every creditworthy customer who calls us their bank carries our credit card,” Wells Fargo WFC -1.54% CEO John Stumpf said during a recent conference. At last count, only 37% of the bank’s 70 million customers had a Wells Fargo credit card. So to turn things around, the San Francisco-based bank is developing a new line of cards with American Express AXP -1.85% (available mid-2014) and Visa V -2.47% Signature, in addition to completely revamping its credit card rewards program.

“We want to get [customers] excited and give them products that are financially helpful,” said Brent Vallet, Wells Fargo’s Head of Consumer Credit Card, Lines and Loans business, during a phone interview. “We know there’s a tremendous opportunity within our base.”

Similarly, U.S. Bancorp will unveil a brand new line-up of American Express EXPR -1.2%cards later this year, and has said it will focus on marketing them to existing customers.Bank of America BAC -1.06%, which has steadily rolled out cards with (banking account) customer-only perks over the past two years, has announced a strategic and renewed effort to get these into the hands of existing customers.

Before these recent initiatives, the big banks’ in-house credit card businesses were generally pretty stagnant. Bank of America, for instance, didn’t see a spike in new credit card sign-ups until the last quarter of 2013, when it issued more than 1 million new cards, the majority to existing customers, according to a spokeswoman.

The timing of the new big bank push is hardly surprising. After the financial crisis hit in 2008, consumers went on a debt reduction diet. Banks, too, sheltered in place and avoided taking on new risk, particularly as they focused on cleaning up their balance sheets.

Now consumers are re-gaining the confidence to borrow; credit card debt surged $3.98 billion in October and $457.8 million in November, reaching the highest level in three years. With credit card delinquencies and charge-offs down across the board, banks are also exhibiting a growing appetite for this type of lending, Indeed, for many banks, credit card revenues have helped offset losses in mortgage holdings, recent earnings reports show.

Which brings us back to the banks’ push to peddle credit cards to existing customers, and why those consumers should actually consider such offers. For banks, the advantage is obvious. “They know the good guys,” says payments industry researcher Robert Hammer, CEO of the Card Knowledge Factory. “They know who is good and who is bad risk, from card usage to repayment behavior.” Existing customers also represent an opportunity to save on marketing costs and build on the relationships they’ve already cultivated. “Many [customers] have mortgages with us, so we have some knowledge of the mortgage relationship, and also the deposit relationship. They’re doing business with us,” said Vallet.

Banks stand to make money from credit cards in two primary ways: the interest on carried balances (at an industry-wide average rate of 15.06%) and swipe fees on card purchases. So even if you’re the type who pays in full every month, selling you a credit card can be profitable.

So should you take the bait? If it’s a card that meets your needs and is competitive in its own right, as many are, the extra rewards can be a final selling point. To help you decide, here are the perks that your regular bank will throw your way if you sign up for their card:

Bank of America:

• BankAmericard Privileges with Cash Rewards promises 50% greater cash rewards if you deposit the rewards into a Bank of America account. This turns your $25 cash back into $37.50.
• BankAmericard Travel Rewards touts a 10% bonus points award for existing customers. It’s based on your total spending: by charging $10,000 to the card in a year, you’ll get an extra 1,000 points added to your account.
• The BankAmericard Cash Rewards line offers 10% greater cash rewards for existing customers. This boosts your $25 cash back to $27.50.
• BankAmericard Better Balance Rewards gives existing customers a $20 annual bonus.

Chase

• Chase Freedom offers checking account holders an extra 10% bonus on all cash back earned at the end of each year.

PNC:

• All three of PNC’s credit cards — the PNC CashBuilder, PNC points and PNC Flex — offer extra perks (like better rewards rates or bonus points) if you have a qualifying bank account.

U.S. Bank:

• The $49 annual fee for FlexPerks Travel Rewards is waived for two years if you have a platinum checking package; other folks only get one year off the hook.
• The Cash+ card offers an introductory cash bonus exclusively for platinum checking customers. Collect $50 in cash back if you spend $2,500 in the first four months of having the card.
• FlexPerks Reserve and FlexPerks Travel Rewards have extra bonuses for high net worth clients who have a financial advisor at U.S. Bank. For FlexPerks Reserve, expect a 50% points bonus on the amount spent each month. For FlexPerks Travel Rewards, there’s a 25% points bonus on the amount spent each month.

Wells Fargo:

• The new suite of American Express cards will feature incremental rewards based on the level of spending you do with the bank, according to Vallet.

The last thing to consider — if your only credit card is with your primary bank — is whether you’re asking for trouble if the rubber ever meets the road. Say your bank decides to cancel your card without notice, which they reserve the right to do, whether you’re a loyal, longtime customer or not. Suddenly you’re left in a lurch until you can get another card. Or, say your bank tells you they’re going to hike your interest rate or lower your credit line upon a reassessment of your risk. This could be because they’ve adjusted their risk formula or you’ve gotten riskier. Maybe you recently missed a mortgage payment — on a mortgage carried by your bank. They have direct and speedy access to that information, rather than having to get it through a credit bureau, at least “assuming there’s communication between the lending arm and the banking arm,” said Ruth Susswein, Deputy Director of National Priorities at Consumer Action.

What it boils down to: Think about keeping a card outside your bank, too, just in case. “You wouldn’t want to only rely on one friend your whole life, you want to have options available to you…so it might be helpful to do business with more than one company,” said Susswein. “Two is better than one.”

Article Source:  McGrath, Maggie. "Why It Could Pay To Get A Credit Card From Your Regular Bank."Forbes. Forbes Magazine, 23 Jan. 2013. Web. 23 Jan. 2014.

Car Title Loans May Wreck Your Finances

 Car title loans could hurt your finances in the long run. Know the facts and do not become vulnerable to loan sharks, bad credit, debt and other unforeseen financial hiccups. — Thinkstock/Getty Images

When you're living on a fixed income or facing bills you can't afford to pay, it can be tempting to consider borrowing from places like car title loan companies.

After all, these lenders put cash in your hands in a way that's convenient, fast and relatively drama-free — at least, at first.

Yet a car title loan is "absolutely the wrong way to deal with a short-term financial problem," says Jay Speer, executive director of the Virginia Poverty Law Center, a nonprofit that advocates on behalf of the state's low-income citizens.

"A loan is when you have the ability to repay," he says. "But car title lenders don't even assess that. So that's called loan sharking. And loan sharking means tricking someone into a debt cycle that they can't get out of. The lender just wants you to keep paying interest," according to Speer.

Car title lending is a $5.2 billion-a-year business, according to the Center for Responsible Lending. About 7,730 car title lenders operate in 21 states, costing borrowers $3.6 billion in interest on $1.6 billion in loans.

While state officials and car title companies don't keep records about the age of borrowers, a healthy chunk of these loans may be going to middle-age and elderly consumers. About 20 percent of older Americans have used car title loans, according to a 2008 AARP national survey called "A Portrait of Older Underbanked and Unbanked Consumers."

One in five people ages 45 to 64 with incomes under $50,000 has used a vehicle for a short-term loan. And about one-third of people ages 65 and older have received car title loans.

"The reason almost everyone gets these loans is normally to pay an immediate expense," such as a gas or electric bill or a credit card bill that's due, says Speer.

But the average person who borrows $1,000 from a title loan company typically winds up paying back about $3,000 to $4,000, he says.

So while the car title loan might help you pay the initial bill, "now you're in much worse shape," Speer says. "Overall, it's just going to wind up being an even bigger crisis and your situation is going to be much worse."

Repeated messages left for the American Association of Responsible Auto Lenders, an industry trade group, weren't returned. However, Pat Crowley, a spokesperson for the Ohio Consumer Lenders Association, which represents title lenders in that state, says the loans are "very well priced" in comparison to alternatives. "We are fully regulated. We are very transparent about the fees we charge, and our fee structure is very clear," Crowley says.

"We feel that auto title loans are actually less expensive than other types of unsecured loans," he says.

Here's How Car Title Loans Work

When you get a title loan, it's a short-term loan — usually for just one month — that you secure with the title to your vehicle. Although the majority of title lenders require you to own your car outright, some don't. Either way, the lender puts a lien on your car. When you repay the loan, the lien is removed and you get your title back. Sounds easy enough, right? Generally speaking, it is. Even retirees can obtain car title loans, as long as they have a valid photo identification and proof that they own the vehicle. In many states, there isn't even a credit check.

The loan amount is based on the appraised value of the vehicle, and it's typical for consumers to be able to borrow anywhere from 30 percent to 50 percent of their car's worth.

And here's where car title loans get dicey.

Just like their cousins — payday loans — car title loans impose triple-digit annual interest rates on consumers. And when you combine very high rates with very short repayment periods, it's a recipe for financial disaster. Borrowers who can't repay the entire loan on time typically wind up rolling these loans over month after month, incurring additional "rollover" fees and interest.

For those who can't pay and who don't roll over their loans, the lenders repossess their cars — a potentially disastrous scenario for those in or approaching retirement, and for individuals who rely on their cars to get to work, medical appointments and other places.

A 2013 joint study conducted by the Consumer Federation of America and the Center for Responsible Lending found that the average consumer takes out a car title loan for $951 and renews the loan eight times.

With an average annual percentage rate (APR) of about 300 percent, consumers end up paying about $2,142 in interest alone, according to the study.

And one in six loans ends in repossession of a car, costing added fees of $400 or more, the study found.

Due to the many potential pitfalls of car title loans, lawmakers and consumer advocates have rallied to stem their use.

While high-interest title lending is banned in more than half the states, the industry continues to thrive. That's because several states have loopholes that allow vehicle title lending to continue unchecked.

In one state, Virginia, business is especially booming, thanks to a 2011 change in state law that allows car title companies to offer loans on cars titled out of state.

Now consumers from border areas, such as Maryland and Washington, D.C., flock to Virginia for car title loans.

According to the Virginia State Corporation Commission, car title lenders in Virginia issued more than 161,500 loans worth about $180 million in 2012, up from nearly 128,500 loans worth more than $125 million made in 2011. Of the more than 132,000 individuals who received those loans, 20 percent of consumers were 60 days or more late with payments and more than 13,000 vehicles were repossessed.

As an alternative to car title loans, consider borrowing money from family members or your church, Speer says. "You can also cut back on expenses, ask your employer for an advance on your salary if you're working, or even ask the power company to give you more time to pay your bill," says Speer.

It's best to avoid these loans — no matter how badly you need the money.

Article Source:  Khalfani-Cox, Lynnette. "Car Title Loans May Wreck Your Finances." AARP. N.p., n.d. Web. 17 Jan. 2014.