The CFPB has filed an amicus brief in Billings v. Propel Financial Services, LLC, a case on appeal to the U.S. Court of Appeals for the Fifth Circuit. The issue in the case is whether a private lender extends“consumer credit” under TILA by providing loans to consumers for the purpose of paying residential property taxes.
The plaintiffs in the case had obtained a loan from a licensed property tax lender to pay property taxes on their home. According to the CFPB’s brief, Texas law allows licensed property tax lenders to charge annual interest of up to 18% and specified fees on “property tax loans.” Such loans are generally defined as an advance of money in connection with the payment of property taxes and related closing costs in which the taxing unit’s lien is transferred to the property tax lender. The plaintiffs alleged that they entered into a Property Tax Payment Agreement (Payment Agreement) with the lender under which they financed the amount of their unpaid taxes, plus closing costs and loan origination and processing fees, at an interest rate of 13.5%.
In their class action complaint, the plaintiffs alleged various TILA violations by the lender. The district court dismissed the complaint, holding that property taxes are not a debt under Texas law and allowing individuals to defer payment of tax obligations did not constitute an offer of credit. The court also held that the plaintiffs’ property tax loan was not “consumer credit” subject to TILA because property tax obligations are for the public’s benefit.
In its brief in support of the plaintiffs, the CFPB argues that because the Payment Agreement provided for an advance of funds by the lender to pay the plaintiffs’ property taxes in exchange for which the lender received the plaintiffs’ promise to pay back the loan with interest, the arrangement constituted an extension of credit under TILA. In support, the CFPB points to a comment in the Regulation Z Official Staff Commentary which provides that while tax obligations are not “credit” under TILA, third party financing of such obligations is credit.
It further argues that, in concluding that a property tax loan is not subject to TILA, the district court gave undue significance to the transfer of the tax lien to the lender. According to the CFPB, the district court incorrectly concluded that the loan did not pay off the plaintiffs’ taxes and create a debt owed by the plaintiffs but instead only transferred the tax lien to a new party. In addition, the CFPB argues that, in concluding that the loan was not “consumer credit,” the court incorrectly focused on the state’s purpose in imposing taxes for the public benefit, rather than the plaintiffs’ consumer purpose in obtaining the loan.