CFPB enters into consent order with auto title lender

by Ballard Spahr LLP

The CFPB announced that it has entered into a consent order with TMX Finance, LLC to settle allegations that the company did not provide sufficient information to consumers about the terms of auto title loans, pawns or pledges, and engaged in unfair collection practices.  The consent order requires TMX Finance to pay a $9 million civil money penalty.

The consent order involves 30-day credit transactions made by TMX Finance under the brands TitleMax and TitleBucks at storefronts in Alabama, Georgia and Tennessee.  Under the applicable laws of the three states, consumers can renew or extend a transaction by paying the finance charge at the end of each 30-day period.  According to the CFPB’s findings of fact and conclusions of law set forth in the consent order (which TMX Finance does not admit or deny), the company engaged in the following conduct in violation of the Consumer Financial Protection Act:

  • After telling a consumer the amount of credit for which he or she was eligible, a company employee would ask the consumer to indicate the number of months over which he or she would like to repay the transaction or how much the consumer would like to pay each month.  After the consumer identified a payback period or target monthly payment, the employee would show the consumer a payback guide showing the monthly payments required to repay the principal balance in full at the end of a stated period.  The payment guide did not disclose the total finance charge that a consumer would pay if he or she chose to renew a transaction multiple times but showed the amount of finance charge and principal that needed to be paid at the end of each 30-day period for the transaction to amortize over the consumer’s selected term.  The CFPB found the use of the payback guide was “abusive” in violation of the CFPA because it materially interfered with a consumer’s understanding of the terms and cost of the transactions.  More specifically, the CFPB found that the company’s sales pitch and the guide materially interfered with a consumer’s ability to understand such things as that guide was not an actual payment plan, renewing the transaction over an extended period would substantially affect the overall cost of the transaction, and the transaction would be more expensive the longer it took the consumer to it pay off.
  • Company employees were permitted to conduct “in-person” visits to a consumer’s home or places of employment if a consumer failed to make a timely payment and did not respond to communications from company employees.  The CFPB found that during such visits, employees disclosed the existence of a consumer’s debts to third parties.  It also found that employees visited places of employment even after being informed by a consumer or a consumer’s supervisor that such visits were not permitted.  The CFPB found that the company’s practice of making in-person visits was “unfair” in violation of the CFPA.

In addition to requiring payment of the civil money penalty, the consent order contains various restrictions on the company’s conduct.  Such restrictions include a prohibition on in-person visits unless they are for the purpose of locating and repossessing vehicles and using a payback guide or similar document.

As TMX Finance noted in a press release issued in connection with the settlement, the consent order does not require TMX Finance to pay any restitution to consumers.  The press release included a statement from the company’s president in which he affirmed the company’s continuing commitment to remaining a reliable source of credit for customers facing short-term financial setbacks like medical emergencies or home repairs.  The press release noted that the payback guide was designed to assist customers in understanding the ramifications of renewing or extending their 30-day credit transactions.

Last week, the CFPB announced that it had filed administrative enforcement actions against five Arizona auto title lenders for alleged violations of Truth in Lending Act advertising requirements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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