CFPB Declares Settlement with Lending Operation for Neglecting to Disclose Charges
Inside Subprime: July 20, 2018
By Ben Moore
The CFPB announced July 19 that it would settle a case against a title lender with about 100 lending outlets across Alabama, Mississippi, and South Carolina. The lending operation was found to be in violation of both the Consumer Financial Protection Act of 2010 and the Truth in Lending Act by neglecting to disclose the correct annual percentage rates and finance charges associated with its Mississippi auto title loans.
An auto title loan is a loan issued using the borrower’s car as collateral. A lender will typically offer somewhere between 25-50% of the value of the vehicle to be repaid with interest by the borrower. If the borrower is unable to make payments on the loan, they risk repossession of the vehicle. In Mississippi, a $500 loan costs an average of $125 in interest, which equates to 300 percent APR. This can make a title loan difficult to repay, especially if lenders aren’t upfront about the cost.
The consent order stated that the lender disclosed the fees and rates for a 30-day single repayment loan while asking the borrower to sign a 10-month repayment schedule. The finance charge listed on the paperwork was inequivalent to the total the borrower would pay over the 10 months, resulting in more than $2,000 in additional charges than what would have been expected based on the lender’s disclosures. The CFPB determined that “consumers acting reasonably likely would not understand that the finance charge disclosed in the loan agreement does not actually correspond to their loan payment term.”
The consent order required restitution in the amount of $1,522,298. This amount represents the total in excess charges to affected consumers compared to the amount disclosed in the auto title agreements that consumers signed.
However, the fine was suspended, and the title lender was only required to pay $500,000 to affected consumers. While it is estimated that 1,309 people were affected, those affected will only receive about a third of the amount due to them based on the financial harm imposed by the lender.