TitleMax has been ordered to pay a $10 million fine for overcharging military families and others for auto title loans, according to the Consumer Financial Protection Bureau (CFPB).
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. It said TitleMax tried to hide their 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 a repeat offender
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.
In recent years, the CFPB has pursued Military Lending Act claims against multiple lawbreakers, including the nation’s largest pawn lender as well as an online lender. The CFPB also shut down a lender for repeat offenses against military families.
To learn more about the resources offered by the CFPB to support military families, visit the CFPB’s website.