On September 26, the Consumer Financial Protection Bureau (CFPB) levied a $9 million fine against TitleMax parent company TMX Finance LLC for failure to tell consumers the terms and costs of auto-title loans sold over a 5-year period, beginning in 2011. The lender was also charged with illegally exposing consumers' personal information to their employers and references.
Offering auto-title and personal loans at 1,300 stores in 18 states, TMX is barred from making in-person visits to collect debts and encouraging customers to take longer time to pay a 30-day loan.
CRL's Delvin Davis, a senior researcher and an expert in car-title lending, made the following statement:
TitleMax earned this fine for its abusive tactics, and for practicing a business model that focuses on making unaffordable triple-digit interest loans—as high as 300 percent—with the borrower's vehicle as collateral. TitleMax is a major player in an industry that drains $3.9 billion each year from cash-strapped consumers.
The car-title lending debt trap isn't new. This industry systematically makes loans without regard to a borrower's ability to repay them, and then stresses aggressive debt collection tactics--so consumers are routinely forced to renew loans or lose their vehicles. TitleMax, in particular, is known to have an average of eight renewals of these high cost loans for every customer.
Currently, CFPB's proposed rule for payday and car-title lending is wisely based on an ability to repay principle. In order to truly protect consumers, the final rule needs to be strengthened so that there are no exceptions, and that loans are always made based on the borrower's income and expenses rather than the value of the collateral. In addition, states should enforce a rate limit of 36 percent as the most effective way to prevent predatory lending practices.
For more information on car-title loans and debt collection:
- Consumers Lose $8 Billion in Fees Each Year with Payday and Car-title Loans (May 2016)
- Car-title Lending: Disregard for Borrowers' Ability to Repay (May 2014)