Many consumers breathe a sigh of relief when their car loans are finally paid off. Gaining title to personal vehicles should free up monthly monies — unless that title is later used as collateral for a high-cost and abusive loan.
Car-title loans provide a percentage of a vehicle’s total value in exchange for the promise of quick cash. Unfortunately, when car titles are used as collateral for one of the most predatory and high-cost consumer loans, another cycle of debt can begin. The typical car-title loan is refinanced eight times and comes with triple-digit interest rates as high as 300 percent. Each year, car-title loans strip $4 billion in fees from consumers. The looming threat of repossession, which affects one in five consumers, often prompts these costly renewals.
Frequently industry collection practices violate basic consumer laws. Vehicle repossessions cause not only the loss of personal transportation, but create mobility challenges affecting virtually every dimension of life – reaching employment, education, medical services or managing personal business.
In recent days, the Consumer Financial Protection Bureau (CFPB) fined a major car-title lender $9 million and sued another five. Together, these separate actions underscore how consumers’ rights are often violated and the continued need for financial regulation.
TMX Finance, offering auto-title and personal loans in 18 states, is one of the nation’s largest auto title lenders with 1,300 storefronts doing business as TitleMax, TitleBucks, and InstaLoans. CFPB charged the businesses with failure to tell its customers the terms and costs of its auto-title loans sold over a five-year period that begin in 2011. It was also charged with illegally exposing consumers’ personal information to their employers in three states — Alabama, Georgia and Tennessee.
Due to CFPB’s actions, TMX must stop both making visits to collect debts and end deceptive marketing and advertising practices that confuse borrowers’ understanding of actual loan costs. In addition to paying a $9 million fine, TMX Finance was found to use “guides” or similar documents that misrepresented loan terms, lengths and costs. Before the enforcement action, it also made in-person visits to consumers’ workplaces or homes to collect payments.
“TMX Finance lured consumers into more expensive loans with information that hid the true costs of the deal,” said CFPB Director Richard Cordray. “Then they followed up with intrusive visits to homes and workplaces that put consumers’ personal information at risk. … [W]e are making it clear that these actions were unacceptable and illegal.”
CFPB found that TMX Finance employees offered borrowers a “Voluntary Payback Guide” that would extend payment periods at a smaller monthly cost. What these employees failed to share, however, was the true cost of the extended loan.
“When borrowers can no longer afford the interest charged, their personal transportation is seized for a fraction of the vehicle’s value,” said Delvin Davis, a senior researcher with the Center for Responsible Lending. “Unfortunately, there are many other predatory lenders whose practices mirror these same unfortunate consumer experiences.”
Only a few days before CFPB’s actions against TMX Finance, the Bureau sued five other car-title lenders operating in Arizona — Auto Cash Leashing, LLC; Interstate Lending, LLC; Oasis Title Loans, LLC; Phoenix Title Loans, LLC; and Presto Auto Loans, Inc. All are lenders charged with also failing to disclose in respective advertisements annual percentage rates on loans.
The case now moves to an Administrative Law Judge for further actions.
“These enforcement actions are recent examples of why proposed rules for debt collectors should be finalized. CFPB’s proposed rules for payday and car-title lending need to be strengthened and eliminate loopholes,” Davis said. “It’s what consumers expect — and it is also what they need.”
Charlene Crowell is a communications deputy director with the Center for Responsible Lending. She can be reached at Charlene.firstname.lastname@example.org.