The CFPB announced that it has entered into a consent order with Main Street Personal Finance, Inc. and two subsidiaries (Main Street), each a small-dollar lender, to settle the CFPB’s allegations that Main Street (1) violated the Truth in Lending Act and the CFPA’s UDAAP prohibition by underdisclosing the finance charge on auto-title loans entered into with Mississippi consumers and failing to make timely refunds of credit balances, and (2) violated the UDAAP prohibition by making collection calls to consumers’ workplaces and references.

According to the consent order, Mississippi law requires Mississippi title loans (referred to as “auto-title pledge transactions”) to be structured as single payment transactions with a 30-day maturity but permits the parties to agree in writing to 30-day extensions if the lender reduces the principal amount used to calculate interest by at least ten percent of the original amount at each 30-day extension.  The consent order states that, at the same time Main Street had consumers sign its Title Pledge Agreement for a single 30-day transaction, it also had consumers sign a separate document entitled “Amortization Schedule” showing a 10-month amortizing payment schedule providing for 10 equal payments.  Main Street’s TILA disclosures, included in the Title Pledge Agreement, showed the finance charge on the 30-day transaction, and none of Main Street’s documents “plainly indicate[d] to consumers that the finance charge and total amount paid under the 10-month Amortization Schedule would be higher than those paid under the single-payment schedule.”

TILA disclosures must reflect “the terms of the legal obligation between the parties.”  The consent order states that the CFPB found that the 10-month Amortization Schedule represented the legal obligation between the parties and, accordingly, the disclosure of a smaller finance charge based on a 30-day single payment loan violated TILA.  (The same issue was involved in the CFPB’s July 2018 consent order with Triton Management Group, Inc.)

The CFPB also found that Main Street’s failure to disclose the higher finance charge was a deceptive practice in violation of the CFPA’s UDAAP prohibition because “consumers acting reasonably likely would not understand that the Finance Charge and Total of Payments disclosed in the Title Loan Agreement did not actually represent the amounts they would pay if they paid according to the Amortization Schedule.”

In addition to the violations involving Main Street’s Mississippi auto-title loans, the consent order states that the CFPB found that Main Street, by failing to refund credit balances to consumers, violated the TILA/Regulation Z requirement to refund credit balances in excess of $1 that are outstanding for more than 6 months, and engaged in an unfair practice in violation of the CFPA.  The CFPB also found that Main Street engaged in unfair practices in violation of the CFPA by making collection calls to consumers’ workplaces and references, even when it had accurate direct contact information for consumers and had been asked to stop making such calls, and by disclosing or risking disclosure that consumers’ debts were delinquent.  

The consent order enters a judgment for equitable monetary relief of $3,540,517.10 against Main Street, which represents “the total title finance charges made directly or indirectly by Affected Title Consumers to [Main Street] that exceed the amount of finance charges stated in the required TILA disclosure box in the Mississippi auto-title pledge agreements those consumers received.”  Based on Main Street’s financial condition, the consent order suspends full payment of the judgment for equitable monetary relief subject to Main Street’s payment of $2 million.  The consent order also imposes a $1 civil money penalty based on Main Street’s financial condition and prohibits Main Street from continuing to engage in the practices that are the subject of the consent order.

The consent order shows that, where renewals and extensions are contemplated at loan inception, lenders continue to have difficulty in distinguishing between single-payment and multiple-payment transactions.  (This problem is particularly vexing but completely solvable with regard to Mississippi title loans.)  Disclosing a multiple-payment transaction as a single-payment transaction can be catastrophic, so lenders should consult qualified counsel to ensure their disclosures comply with TILA.