The terms and conditions for short-term, high-cost loans can often be confusing, making it difficult to decipher just how much a borrower will spend to repay an initial loan. That was apparently the case for TMX Finance, the company behind TitleMax, as federal regulators fined the company $9 million for allegedly luring consumers into costly loan renewals by presenting them with misleading information about monthly plans. 

The Consumer Financial Protection Bureau announced that it had fined TMX Finance for allegedly engaging in a slew of illegal practices, including providing customers with misleading information about the terms of the loans, and divulging private information about customers during collection attempts.

According to the CFPB filing [PDF], TMX Finance — which operates 1,300 stores under the TitleMax, TitleBucks, and InstaLoan names — lured consumers into more expensive loans with information that hid the true costs of extending typical 30-day loans.

The CFPB found that in many cases when store employees in Alabama, Georgia, and Tennessee pitched a 30-day loan to customers they would ask the customer how many months he or she would like to repay the transaction, or how much the customer would like to pay each month.

These “monthly options” required consumers to renew or extend the transaction each month — incurring additional fees — and to pay more than the required minimum payment to reduce the principal over time, the CFPB complaint states.

Once the borrower provided their desired payback period or monthly rate, the store employee would provide them with a “Voluntary Payback Guide” that showed how to repay the loan with smaller payments over a longer time period.

However, the CFPB alleges that the system default for the guide is 12 months, but could be adjusted to up to 24 months. This would likely confuse a borrower who wanted to repay their loan in two months. If they made the payments listed for a 12 month loan only a small fraction would have been paid off in the two months they had planned for, forcing them to renew the loan.

“The guide and sales pitch distracted consumers from the fact that repeatedly renewing the loan, as encouraged by TMX Finance employees, would dramatically increase the loan’s cost,” the CFPB claims.

In fact, the CFPB found that the guide did not calculate fees or the total cost to consumers of repeatedly renewing the loan instead of repaying it in 30 days. This, the CPFB says, makes it difficult, if not impossible, for a consumer to compare costs for renewing the loan over a given period.

In addition to allegedly misleading customers on the total cost of their loans, the CFPB found that TMX Finance and its loan companies exposed the personal financial information of customers during debt-collection attempts.

According to the complaint, from at least Dec. 2011 to Dec. 2015, if a customer failed to make a timely payment and did not respond to communications from store employees, the company would allow employees to make “in-person visits” to borrowers’ homes, place of employment, or listed references.

During these in-person visits, employees disclosed the existence of borrowers’ past-due debts, the CFPB claims.

In order to resolve allegations it violated consumer protection laws, the CFPB has ordered TMX Finance to stop abusive loan-repayment policies, stop intrusive visits to consumers’ homes or workplaces, and pay a $9 million penalty to the CFPB’s Civil Penalty Fund.

TMX Finance says in statement that it did not admit to the CFPB’s findings, but that the resolution settles a years-long investigation into its practices.

“This resolution of the CFPB’s investigation addresses and mitigates the CFPB’s identified concerns while allowing us to continue meeting the urgent financial needs of our customers,” Otto Bielss, President of the TMX Finance, said. “We continue to focus on enhancing and strengthening our compliance program to support responsible lending practices and our compliance with applicable state and federal consumer lending and consumer protection laws.”

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