The Consumer Financial Protection Bureau (CFPB) recently took action against a web of corporate entities operating under TMX Finance, broadly known as TitleMax, for violating the financial rights of military families and other consumers in providing auto title loans. The CFPB found that TitleMax violated the Military Lending Act by extending prohibited title loans to military families and, oftentimes, by charging nearly three times over the 36% annual interest rate cap. TitleMax tried to hide its unlawful activities by, among other things, altering the personal information of military borrowers to circumvent their protected status. The CFPB also found that TitleMax increased loan payments for borrowers by charging unlawful fees. The CFPB’s order ends TitleMax’s illegal activities, and requires the company to pay more than $5 million in consumer relief and a $10 million civil money penalty.
“The CFPB’s order stops TitleMax’s illegal predatory lending to military families – sometimes even taking steps to hide evidence of its wrongdoing,” said CFPB Director Rohit Chopra. “Our legal action is the CFPB’s first against a nonbank lender for providing title loans to military families.”
TitleMax is made up of TMX Finance LLC and numerous subsidiaries across the United States with both in-person and online locations. TitleMax’s headquarters is in Savannah, Georgia, and it is engaged in the business of extending short-term, high-cost consumer loans that are secured by borrowers’ vehicle titles. According to TitleMax, consumers can receive a title loan of up to $10,000. TitleMax is privately owned, and currently has more than 1,000 locations in 18 states: Alabama, Arizona, Delaware, Florida, Georgia, Idaho, Illinois, Kansas, Mississippi, Missouri, Nevada, New Mexico, South Carolina, Tennessee, Texas, Utah, Virginia, and Wisconsin. TitleMax claims to have almost 4,000 employees and to serve thousands of people every day.
TitleMax is a repeat offender. TitleMax has been under a CFPB Order since September 26, 2016, for its lending and debt-collection practices. In the 2016 Order, the CFPB found that store employees, as part of their sales pitch for the company’s 30-day loans, offered consumers a “monthly option” for making loan payments and misrepresented the true cost of its loans if the consumers renewed them multiple times. The CFPB also found that the company engaged in illegal high-pressure debt collection practices. The CFPB ordered the company to stop its unlawful practices and pay a $9 million penalty.
Auto title loans are small-dollar loans with expensive charges and short terms of usually 30 days or less. For these loans, borrowers are required to put up their car or truck title for collateral. The nature of these loans causes many borrowers to face unaffordable payments, and find they must choose among defaulting, reborrowing, or skipping other financial obligations like rent, food, or medical care.
The dangers of title and other predatory loans to military families were laid out in a 2006 Department of Defense report that noted that predatory lending “undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all-volunteer fighting force.” The response of Congress was to pass the Military Lending Act, which took effect in 2007. The Act protects servicemembers, their spouses, and their children by, among other protections, prohibiting nonbanks from extending auto title loans, capping interest rates at 36%, banning waivers of rights under consumer financial protection laws, banning automatic payments from paychecks to pay back loans, and banning prepayment penalties.
Between October 3, 2016, and September 17, 2021, TitleMax made at least 2,670 prohibited auto title loans to borrowers covered under the Military Lending Act. It also charged borrowers unlawful fees on about 15,000 loans. Specifically, TitleMax and its subsidiaries harmed military families and other consumers by, among other things:
- Making illegal loans at unlawful rates and covering up their behavior: TitleMax made illegal auto title loans to military families at annual interest rates over 36% and many times over 100%. TitleMax offered the loans while withholding information about military families’ rights under the Military Lending Act – under which both title loans and annual interest rates above 36% are illegal. Its loans also included mandatory arbitration clauses and unreasonable notice provisions that the Military Lending Act prohibits. TitleMax covered its tracks by, among other actions, doctoring personally identifiable information so borrowers would not be identified as servicemembers or covered dependents.
- Charging unlawful fees for a useless product: TitleMax charged fees for a useless product on thousands of loans. The company claimed the fees were for an insurance product to protect the company against potential losses, but the product did not provide any coverage for these loans. The company also charged fees for this product on loans that did not qualify for coverage.
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against companies that violate federal consumer financial protection laws, including engaging in unfair, deceptive, or abusive acts or practices. The CFPB also has authority to enforce the Military Lending Act’s protections for military families. In addition to ending its illegal lending practices, the order requires TitleMax to:
- Pay $5.05 million to consumers: TitleMax is required to provide redress to consumers for payments made on illegally charged fees and the interest paid on those fees, payments made on illegal loans, the loss-of-use of funds, the loss-of-use of vehicles that were wrongfully repossessed, and the replacement value of vehicles that were sold after being wrongfully repossessed. Consumers are not required to take any action to get the money to which they are entitled.
- Stop illegal lending practices: TitleMax must implement and maintain robust internal controls and testing to prevent and detect potential law violations. To hold TitleMax accountable for future compliance, all findings identified through these internal controls and testing measures are reported directly to TitleMax’s chief officers for resolution.
- Pay a $10 million fine: TitleMax will pay a $10 million penalty, which will be deposited in the CFPB’s victim relief fund.
Read the order here.
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