A proposed class action lawsuit filed in the U.S. District Court for the Northern District of Georgia on February 21, 2024 against TitleMax of Georgia, Inc. and TMX Finance LLC (together, “TitleMax”) accuses the Georgia-based title and pawn lender of various violations of the Military Lending Act (“MLA”), including charging servicemembers and their dependents interest in excess of the MLA’s 36% rate cap.

According to the class action complaint, TitleMax’s standard form “Pawn Transaction Disclosure Statement and Security Agreement” includes loan terms that are prohibited by the MLA for loans to Covered Borrowers, including charging interest above the MLA’s 36% rate cap and failing to provide required disclosures. It is also alleged that the agreement allows for the rollover of loans to a Covered Borrower using the proceeds of other credit extended by the same creditor, includes a class action ban and jury trial waiver, mandatory arbitration, and extends credit to Covered Borrowers where their vehicle title is used as security for the loan, all of which is prohibited under the MLA. See, 10 U.S.C. § 987(b),(c),(e)(2)(5)(6).

A “Covered Borrower” under the MLA includes servicemembers as well as their dependents. 32 C.F.R. § 223.3(g)(1). The named plaintiff is married to an active-duty servicemember serving in the Army. The complaint alleges that TitleMax extended at least two title pawn loans to plaintiff over a two-year period, which were refinanced at least 14 times with interest in excess of the 36% rate cap. Plaintiff alleges she was not aware the MLA applied to her loans. The plaintiff further alleges that when she first met with a TitleMax representative and submitted her initial credit application, her application was denied on the basis that she was ineligible as a military Covered Borrower. However, after that initial denial, the TitleMax representative told her they would make an exception for her and extend her a loan. According to the complaint, Plaintiff’s experience was not unique and TitleMax extended thousands of title pawn loans to Covered Borrowers, even after learning they were ineligible under the MLA.

The class action was filed almost exactly one year after TitleMax entered into a consent order on February 23, 2023 with the Consumer Financial Protection Bureau (CFPB) related to similar allegations. Like the class action complaint, the CFPB alleged that TitleMax violated the MLA by extending prohibited title loans to military families and exceeding the 36% MLA interest rate cap. Under the terms of the settlement with the CFPB, TitleMax agreed to change its practices (including those alleged in the class action complaint) and pay $5.05 million in consumer redress and a $10 million civil money penalty. The class action seeks to obtain damages on top of that consumer redress, including not less than $500 per violation, punitive damages, declaratory relief, and fees and costs.

In a report published at the time of the MLA’s enactment in 2006 titled “Report on Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents,” the Department of Defense (“DoD”) highlighted car title loans as “traps” for borrowers with high interest rates and repeated renewals in order to keep the car and access to essential transportation. Report at 16. While the DoD amended the MLA’s implementing regulation in 2015 to expand the definition of “consumer credit” to a broader range of credit products (including credit cards), car title loans have always been covered.