The Consumer Financial Protection Bureau in recent actions against entities it calls “repeat offenders” has zeroed in on flagrant violations of the Military Lending Act (MLA), which is meant to safeguard active-duty military members and their families from financial abuses.
The MLA has features perfect for military families in search of a loan: it caps interest rates for certain financial products at 36%, requires loan disclosures, prohibits unreasonable notice provisions, and ensures that lender terms and conditions do not prevent the borrower from being able to sue the lender in court, i.e. bans forced arbitration clauses.
Last week, the CFPB announced a consent order against “repeat offender” TitleMax (formally TMX Finance). TitleMax was accused of offering loans to military families that exceeded the 36% interest rate cap, and using loan contracts that required their borrowers to go to private arbitration, instead of to court, to resolve claims against it.
The CFPB also said that TitleMax, the largest source of high-interest, short-term car title loans, offered loans secured by vehicle titles to military consumers, which is prohibited under the MLA. According to the consent order, TitleMax made 2,670 prohibited loans in a 5-year period (2016-2021) to military consumers. It also changed consumers’ personally identifiable information to cover up some consumers’ status as military borrowers. Based on these and other MLA violations, TitleMax must pay $15 million total, in civil penalties and for consumer relief.
In November 2021, CFPB also sued pawn store operator FirstCash Inc., another identified “repeat offender,” for MLA violations. The bureau alleged that FirstCash violated a 2013 CFPB order against its predecessor company, CashAmerica. According to the agency complaint, FirstCash made more than 3,600 loans over the MLA 36% cap to more than 1,000 military borrowers, and used loan contracts that would require them to get their claims heard in private arbitration.
