The OCC may assess special examination fees on banks entering into arrangements with title lenders to cover the OCC's additional costs of conducting an examination or investigation of the bank's title loan activities as carried out through the title lender. A borrower may extend the loan for a subsequent month if he or she pays the monthly interest due for the previous month. It is common that a borrower will roll over a title loan several times. If the borrower is unable to pay the monthly interest or principal that is due, the title lender takes possession of the automobile. Upon sale of the automobile, some lenders retain the proceeds of the sale even if the value of the automobile exceeds the loan amount.
Title loans contain several lending practices that have been identified as potentially abusive.
Interest rates can be inordinately high and the loan terms may make it difficult or impossible for borrowers to reduce their indebtedness. In addition, title loan programs may target certain persons who are perceived to be less financially sophisticated or otherwise vulnerable to abusive loan practices. Banks must consider carefully these risks before engaging in such activity, either directly or indirectly. The risk from the third party's failure to meet the terms of the contract also results in increased compliance, reputation, and legal risk. Title-loan industry estimates indicate that the loss rates for title loans exceed the loss rates for conventional loan products.