Wisconsin Title Loan Laws
When it comes to title loan laws, the federal government provides few guidelines and leaves it up to the states to set up their own regulations, which means those regulations can vary quite a bit from state to state. Here’s what you need to know about Wisconsin title loan laws.
The Legality of Title Loans in Wisconsin
Title loans aren’t legal in every state, as some have outlawed them due to their high interest rates and the large number of consumers who get trapped in a dangerous cycle of debt. While title loans are legal in Wisconsin, there was a brief period of time when they were not.
In 2011, the state’s governor at the time, Jim Doyle, passed Wisconsin Act 405. This act not only put several restrictions on the payday lending industry, another short-term lending industry known for high interest rates, but it also effectively outlawed title loans through a veto Doyle inserted in the act. Despite this, many title loan companies in the state were still operational throughout the rest of the year. Within one year, the Republicans had undone the veto that Doyle put in Wisconsin Act 405, and title loan companies were fully legal once again.
The Title Loan Application Process
One of the main reasons that borrowers go with title loans is the quick and convenient application process, along with high approval rates that aren’t contingent on any sort of credit check.
So, how do you get a title loan in Wisconsin? You can apply and get your money in under an hour by following a few simple steps:
- Go to a title loan company, show them your government-issued ID and fill out the required paperwork.
- Allow the title loan company to inspect your vehicle and determine its value.
- Give the title loan company the title to your vehicle.
- Receive your loan.
That’s the entire process to get a title loan. Many title loan companies also offer a form on their website that you can fill out to start your application, but this is really just to either enter your vehicle information and get preapproved for a title loan, or to enter our information so one of the company’s representatives can call you about a title loan.
The only documents you need to obtain a title loan in Wisconsin are your ID and your car title. The minimum age to obtain a title loan is 18 across the entire United States, so every title loan company needs to see a form of ID. The car title is to provide to the title loan company during the repayment period of the loan. When you pay off your loan, you get your car title back. The car title needs to be lien-free, meaning it’s completely paid off, and in your name.
Title loans are secured loans that use cars as collateral, so your approval for a title loan and your title loan amount will both depend on your car. The title loan company inspects your car when you come to get your loan, and then uses a value guide to determine how much it’s worth, based on its condition. With your car’s current market value, the title loan company can decide how much it’s willing to lend you.
If you have second thoughts about your title loan, you do have a short period of time where you can rescind it without any sort of penalties. You have until the end of the next business day after you get your title loan to cancel it. If the title loan company where you got the loan is open 24 hours per day, then you have until 5 p.m. on the next business day after you get your title loan to cancel it.
Title Loan Interest Rates in Wisconsin
Title loan laws in Wisconsin don’t set any sort of cap on title loan interest rates, which means title loan companies are free to charge as much as they want per month. This is one of the reasons why title loans have attracted so much controversy in the state and why the governor tried to get rid of title loans.
Just how much can you expect to pay with a title loan in Wisconsin? It’s not uncommon for title loan companies to set their monthly interest rates at 25 percent, which is equivalent to an annual percentage yield (APR) of 300 percent. Considering a typical loan would be seen as high interest if it had an APR of 30 percent, it’s staggering the amount of interest title loan companies charge. Many proponents of the title loan industry claim that you can’t apply APR to short-term loans, but through extensions, quite a few of those short-term loans become long-term loans.
Title loan rules in Wisconsin regarding interest rates are similar to the rules in many other states, where there is no limit to interest rates or a limit of 25 percent per month. Still, the state’s lack of regulation on interest rates has left borrowers without any protection.
Maximum Amount for Title Loans in Wisconsin
One area where Wisconsin does have limits in place, albeit very high limits, is in regards to the maximum amount of title loans. Title loan laws in Wisconsin cap title loan amounts at 25,000 dollars or up to 50 percent of the value of the vehicle that’s being used as collateral for the loan.
This regulation doesn’t have much of an effect on title loan companies or borrowers. It’s very rare for a borrower to want a title loan for more than 25,000 dollars anyway, and even if they did, they would need a car with the value to get a loan that high. Chances are, a borrower with a paid-off car worth that much won’t be in the position where they need a 30,000-dollar title loan. Most borrowers get loans for a few hundred or a few thousand dollars. It would also be highly unlikely for a title loan company to issue a loan for more than 50 percent of a what a car is worth, because they risk losing money if they need to repossess and sell the car.
Keep in mind that title loan companies may have their own limits independent of Wisconsin title loan laws. For example, some title loan companies in Wisconsin will only issue title loans up to 15,000 dollars, or for up to 30 percent of the value of the car.
Wisconsin Title Loan Terms
The only term restriction set in place by title loan rules in Wisconsin is a term limit of six months. Again, this doesn’t have much of an effect on the title loan industry, because title loans almost always have terms of one month, both in Wisconsin and in most other states. When the title loan term ends, the borrower is supposed to pay the balance on their loan, which means the loan principal and the interest charges.
This often isn’t what happens, though, and there is another option if you are unable to pay back your loan in full. It’s called rolling over your title loan, and it’s essentially an extension of the loan. You pay only the interest charges, and carry the loan principal over to a new term, which results in a new interest charge.
The way title loan terms and extensions are set up causes many borrowers to end up trapped in debt, as they’re only able to pay their interest and not their loan principal. For example, let’s say a borrower takes out a title loan in Wisconsin for a standard amount of 1,000 dollars. Since title loan laws in Wisconsin don’t put any restrictions on interest rates, the borrower gets stuck with a 25-percent monthly interest rate. After a one-month title loan term, the borrower needs to come up with 1,250 dollars, which is probably going to be difficult for someone who needed to borrow 1,000 dollars just a month ago. It’s more likely that the borrower will be able to come up with a smaller amount, such as 250 dollars, preventing their car from getting repossessed but not progressing at all towards paying back the loan.
Title loan borrowers often end up going through this cycle for six months or more, and by the time they’ve paid off their loan, they’ve paid several times the original loan amount in interest charges. What’s even worse is that a borrower could pay only their interest charges for months on end, fail to make a payment because they have no money left, and then get their car repossessed. At that point, they’re out much more than they originally borrowed and they don’t have their car anymore.
By the way, title loan companies are also allowed to charge you late fees if you don’t pay up on your due date. The late fee amount is 2.75 percent.
Car Repossession Laws in Wisconsin
It’s the most dreaded outcome of a title loan – the title loan company repossessing your car and then selling it. Fortunately, this is the one area where Wisconsin title loan laws actually provide borrowers with a bit of actual protection.
If you fail to make your payment, then you’ve defaulted on your title loan, which gives the title loan company the legal authority to come take your car and later sell it. However, title loan repossession laws Wisconsin stipulate that the lender must provide you with written notice at least 20 days before they repossess your car. This gives you an extra couple of weeks to catch up on your payments and prevent repossession. It’s not much, but it’s something. It’s also more than borrowers in many other states are entitled to, as in some places title loan companies can swoop in and take a borrower’s car the second they default on their loan.
So, title loan repossession laws Wisconsin give you some extra time before the title loan company can take your car. Once they have your car, then they are able to sell it, although you may be given an opportunity to buy it back by paying what you owe. Remember that in this case, “what you owe” will likely mean your outstanding loan principal, the interest charges and any of the title loan companies repossession fees, so it could be expensive.
Car repossession laws in Wisconsin also provide you with some protection in the event that your car is sold. After the title loan company sells your car, they will compare the amount that they received from the sale to the amount that you owe. If the amount of the sale isn’t enough to cover how much you owe, the title loan company is not legally able to come after you for the deficiency. There are a few situations where you could be liable for a deficiency:
- If you intentionally damaged or destroyed the car before the lender repossessed it so they couldn’t make as much money by selling it
- If you intentionally hid the car from them
- If the car had a lien on it when you used it as collateral on the title loan
In the event that the title loan company makes more from the sale of your car than you owe them, they must send you that surplus amount. There are states where you would have to pay any deficiency or where you wouldn’t receive the entire surplus amount, so Wisconsin is borrower-friendly in this regard.
Deceptive Title Loan Practices and a Multi-Million Dollar Lawsuit
Even with the huge profits that title loan companies are able to make on interest charges, that still doesn’t stop some of them from increasing their profit margins through unethical and even illegal means. That’s what happened with Wisconsin Auto Title Loans, which ripped borrowers off for years and found itself the target of a class-action lawsuit.
The lawsuit applied to borrowers who obtained loans through Wisconsin Auto Title Loans from January 1, 1999 to December 31, 2010. It alleged that the title loan company signed borrowers up for memberships in its Continental Car Club service without their knowledge. This was a motor club-type service, where members who had emergencies could get reimbursement through the Continental Car Club. For example, the club would pay out 15 dollars for a flat tire or 100 dollars for legal fees as a result of a car accident.
The low payment amounts were one clear problem with this service, especially 100 dollars towards legal fees, which wouldn’t cover much. More concerning was the fact that many borrowers didn’t have a clue that they had this service or what it did. In the event that Wisconsin Auto Title Loans actually told borrowers about this membership program, title loan representatives often told them that the membership was mandatory to get a loan or that it was a one-time fee. In actuality, it was optional, and there was a charge every monthly for the membership.
It may have taken a 10-year court case, but Wisconsin Auto Title Loans eventually agreed to a settlement of 2.75-million dollars. Of course, it didn’t admit any wrongdoing as part of that settlement. Part of the settlement terms included the title loan company getting rid of all the finance charges and other fees on its 36,000 accounts at the time, and it also released any liens it had on borrowers’ cars at the time. The settlement also required that Wisconsin Auto Title Loans didn’t see its Continental Car Club membership for two years.
The case of Wisconsin Auto Title Loans is a cautionary tale with a couple important lessons. First and foremost, if you do get a title loan in Wisconsin, you’ll already be paying enough with the sky-high interest rates, you definitely don’t need to spend any more money on some service club membership of questionable, if any, usefulness. Second, it’s critical that you have a solid understanding of Wisconsin title loan laws. Don’t assume that title loan companies will always follow the law to the letter. As you can see form Wisconsin Auto Title Loans, some of these companies will cut corners to make more money.
Comparing Wisconsin Title Loans to Other States
For the most part, Wisconsin doesn’t stack up very well in regards to title loan regulations when compared to other states. In all fairness, many states allow lenders to charge extremely high interest rates, and you’d be hard pressed to find a state where a title loan is affordable or a good deal for borrowers. Florida comes closest, and you can still end up paying a 30-percent APR there. But Wisconsin’s lack of an interest rate limit makes it one of the most expensive places to get a title loan.
It also doesn’t provide any sort of borrower protection regarding loan extensions. Some other states at least require the loan principal to go down 10 percent or more after a certain number of extensions or even on the very first extension. This means that either the borrower must pay 10 percent of the loan principal off to extend their loan, or the title loan company must reduce the loan principal that amount, if they don’t want to repossess the car. Wisconsin doesn’t have anything like this, which makes it far too easy for borrowers to get stuck in an endless cycle of paying interest only and not making any headway on the actual loan principal.
Car repossession laws in Wisconsin are some of the better repossession laws in the nation, and are one of the few places where the state excels in terms of title loan regulations. Overall, there are a few states that are far worse choices to get a title loan, but there are also many that are better. Whenever possible, it’s best to avoid getting a title loan in the first place, and if you need to do it, make sure that you pay it off as soon as possible.