When it comes to short-term, high-interest loans, payday lenders may get most of the headlines, but auto title loans can be just as perilous for borrowers, especially when the lenders use deceptive marketing. This morning, the Federal Trade Commission announced its first ever legal actions involving title loan operations that misled borrowers.

The FTC announced Friday that First American Title Lending of Georgia, LLC and Finance Select, Inc. have agreed to settle charges they advertised, both online and in print, 0% interest rates for a 30-day car title loan without disclosing important loan conditions or the increased finance charge imposed after the introductory period ended.

While advertised as short-term loans, title loans can become longer-term, high cost installment loans with payments due over several months. The annual percentage rate of a car title loan can be over 300 percent. If a consumer does not repay the loan within 30 days, high finance charges can add up quickly, with a consumer paying hundreds or thousands of dollars in fees or forfeiting the vehicle.

According to the FTC complaint [PDF], First American Title Lending, which operates 30 locations in Georgia, advertised a zero percent offer and failed to disclose that the borrower had to meet specific conditions to actually receive that rate.

The borrower had to be a new customer, repay the loan within 30 days, and pay with a money order or certified funds, not cash or a personal check. If a borrower failed to meet those conditions, the offer did not apply, and he or she would be required to pay a finance charge from the start of the loan.

Additionally, the company’s ads failed to disclose the amount of the finance charge after the introductory period.

According to the FTC’s complaint [PDF] against Finance Select, which does business as Fast Cash Title Pawn, the company failed to disclose that unless a loan was paid in full in 30 days, the zero percent offer did not apply, and the borrower would have to pay a finance charge for the initial 30 days of the loan in addition to any finance charges incurred going forward.

Fast Cash, which has five locations across Georgia and two in Alabama, also failed to disclose how much the finance charge would cost a borrower after the 30-day introductory period was over.

Under the proposed settlement, the two companies are prohibited from failing to disclose all qualifying terms associated with obtaining a loan at its advertised rate; failing to disclose what the finance charge would be after an introductory period ends; and misrepresenting any material terms of any loan agreements.

First American Title Lending is also prohibited from stating the amount of any down payment, number of payments or periods of repayment or the amount of any payment or finance charge without clearly and conspicuously stating all the terms required by the Truth in Lending Act and Regulation Z.

The FTC reports that the latest action is part of an ongoing effort to protect consumers in the short-term lending and auto marketplaces.

In First FTC Cases Against Car Title Lenders, Companies Settle Charges They Deceptively Advertised the Cost of Their Loans [Federal Trade Commission]

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