One of the nation’s largest title loan firms was fined $9 million for misleading consumers about their cost of borrowing, federal regulators said Monday.
TMX Finance, the parent company of TitleMax, allegedly tricked borrowers into taking out longer-term, more expensive loans, and also used illegal debt collection tactics, according to the Consumer Financial Protection Bureau. The firm was ordered to stop the illegal tactics.
TMX, in a statement, said it settled the case without admitting wrongdoing.
Title loans are similar to payday loans, advertised as short-term instruments to help consumers who find themselves in a cash crunch. With title loans, borrowers use their cars as collateral for the loans. They risk losing their cars if the loans aren’t repaid on time.
According to the CFPB, some TitleMax borrowers were steered into longer-term payback plans for their short-term loans, requiring several loan renewals and significantly increasing the costs of borrowing. TMX Finance employees also conducted “field visits” to consumers’ workplaces, despite knowing such visits were not permitted; the tactics were used starting on July 21, 2011, the CFPB said.
TMX Finance, which is based in Savannah, Georgia, is one of the country’s largest auto title lenders, with more than 1,300 storefronts in 18 states.
“TMX Finance lured consumers into more expensive loans with information that hid the true costs of the deal,” said CFPB Director Richard Cordray. “They then followed up with intrusive visits to homes and workplaces that put consumers’ personal information at risk. Today we are making it clear that these actions were unacceptable and illegal.”
No Customer Refunds
In a press release, TMX Finance noted it was not forced to refund any consumers as part of the agreement, “unlike consent orders that the CFPB has previously entered into with other companies within the emergency credit space.”
“This resolution of the CFPB’s investigation addresses and mitigates the CFPB’s identified concerns while allowing us to continue meeting the urgent financial needs of our customers. Many of our customers have nowhere else to turn when they suffer from short-term financial setbacks like medical emergencies or home repairs, and we are committed to remaining a reliable source of credit for them when the need arises,” said Otto Bielss, President of the TMX Finance Family of Companies. “We continue to focus on enhancing and strengthening our compliance program to support responsible lending practices and our compliance with applicable state and federal consumer lending and consumer protection laws.”
According to the consent order made public Monday by the CFPB, borrowers seeking 30-day title loans were shown a “Payback Guide” that offered repayment terms lasting from two to 24 months. The guides were similar to installment loan amortization schedules. Employees “were trained to focus consumers’ attention on the amount of the potential monthly payment, and the sales pitch does not include any discussion of the total cost of the transaction,” the CFPB said.
“The payback guide and sales pitch … materially interfere with the consumer’s ability to understand that the consumer is receiving a 30-day transaction … and that renewing the transaction over an extended period would substantially affect the overall cost of the transaction,” the consent order says.
TitleMax said that since 2015, the firm has discontinued in-person collection activities at homes and places of employment. The company said it will discontinue use of its payback guide now.
The Consumer Financial Protection Bureau has been examining title loans more closely during the past 12 months. In May, the bureau released a report showing that title loans were very risky for car owners. After examining 3.5 million title loans made to 400,000 consumers (many are repeat customers), the CFPB found that one in five borrowers had their car seized by lenders.
Then in June, the bureau released proposed new rules to regulate short-term lending, including payday loans and title loans. The rules, for example, would require lenders to review borrowers’ ability to repay the loans.
Looking for Alternative Sources of Cash
If you ever find yourself strapped for cash, it’s good to keep in mind these smart alternatives to payday loans (and title loans). But if a payday loan or title loan seem like your only options, it’s a good idea to work on improving your traditional credit scores so you can secure more affordable financing. (You can see where your credit currently stands by viewing your free credit report summary, along with two free credit scores, updated every 14 days, on Credit.com.)
In general, you can fix your credit by disputing any errors on your credit report, identifying credit score killers and coming up with a game plan to address those issues.
Image: Peter Zelei