This article was updated Feb. 27 to include a response from TMX Finance LLC, also known as TitleMax.
An auto title loan company has been accused of illegally providing loans to military families and overcharging them for those loans.
The Consumer Financial Protection Bureau’s action requires TMX Finance LLC, widely known as TitleMax, to pay more than $5 million to consumers and a $10 million civil penalty to the CFPB. The action includes other consumers who weren’t military borrowers, and neither the consent order nor CFPB officials could provide information about how much of the $5 million will go to military borrowers.
The CFPB also alleges that TitleMax doctored information about borrowers’ military status so they could provide these loans, even though lenders are prohibited by the Military Lending Act from making title loans to active duty troops or their dependents. Those small-dollar loans come with expensive charges and short terms, usually 30 days or less, in which borrowers put up their vehicle as collateral. They may face unaffordable payments if the loan has to be renewed multiple times.
Consumers aren’t required to take any action to get the money. CFPB has set up a process with TitleMax to provide restitution to consumers for illegally charged fees and the interest paid on those fees, 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, according to the Feb. 23 consent order signed by Rohit Chopra, the bureau’s director.
CFPB orders TitleMax to stop illegal lending practices and take steps to implement internal controls.
TitleMax neither admits nor denies any of the findings or conclusions of law, according to the consent order, part of a CFPB administrative proceeding.
TitleMax “vehemently denies any wrongdoing or liability,” according to a statement from the company. “Although the company agreed to pay a fine to the CFPB, it did so to avoid lengthy and costly litigation, which would be a distraction for the company’s core business of providing best-in-class services to its customers. … The company’s ongoing cooperation demonstrates its commitment to excellence and partnership with all government regulators.”
The agreement is the result of “months of good faith cooperation and discussion between the company and the CFPB,” according to the statement, and the solutions in the agreement “will further support the high-quality service we provide to thousands of customers who rely on TitleMax as a reliable source of credit.
The lender has more than 1,000 locations in 18 states.
According to the consent order, TitleMax states in its own policy that because of the company’s product limitations and the requirements of the Military Lending Act, military borrowers aren’t eligible for title loans.
Despite that, TitleMax still made 2,670 loans to covered military borrowers between Oct. 3, 2016, and Sept. 17, 2021. The 2016 start date is when DoD changed its regulations governing the 2006 Military Lending Act to include more forms of available credit and provide more protections to service members and their families.
Customers can have multiple loans, and loans can be renewed multiple times. Information was not available about how many individual military borrowers were involved in those 2,670 loans.
But many of them had interest rates in excess of 100%, nearly three times the 36% annual interest rate cap set by the Military Lending Act on every type of credit except for mortgages and loans made specifically for a purchase, such as a vehicle, where the loan is secured by that property.
“The CFPB’s order stops TitleMax’s illegal predatory lending to military families — sometimes even taking steps to hide evidence of its wrongdoing,” wrote Chopra. “Our legal action is the CFPB’s first against a nonbank lender for providing title loans to military families.” Over many years, CFPB has pursued action against other lenders for alleged violations of the Military Lending Act, including a pawn lender and an online lender.
In addition to the illegal military loans, 15,386 TitleMax loans included an insurance fee of about $35, with the fee financed through the loan. According to CFPB, the company claimed the fees were for insurance to protect the company against potential losses, but the insurance product didn’t provide such coverage. Information was not available from CFPB or the consent order about how many individual borrowers are included in those 15,386 loans, or how many were military-connected. They are among those who will receive $5 million in payments from TitleMax.
CFPB also accuses TitleMax of doctoring information. In some cases, TitleMax employees conducted checks with DoD’s Military Lending Act database to verify whether the borrower was active duty or a dependent, but ignored the MLA database responses indicating the consumers were covered by the act. The company’s system allowed employees to process these loans.
In other cases, employees changed consumers’ personally identifiable information to get MLA database responses that the consumers weren’t covered. And, at other times, the employees simply didn’t take steps to verify status, CFPB alleges.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.