CFPB Enforcement Actions on Military Lending Violations
In continuing with a busy start to 2023, the Consumer Financial Protection Bureau (CFPB) has brought a couple of interesting enforcement actions for violations that predominantly affect military families.
CFPB’s Action Against TitleMax
The first action is the CFPB’s enforcement action against TMX Finance LLC (TitleMax). On February 23rd, the CFPB filed a Consent Order in the action. According to the Consent Order, The CFPB found that TitleMax violated “ the financial rights of military families and other consumers in providing auto title loans.” The CFPB explains:
“The CFPB found that TitleMax violated the Military Lending Act by extending prohibited title loans to military families and, oftentimes, by charging nearly three times over the 36% annual interest rate cap. TitleMax tried to hide their unlawful activities by, among other things, altering the personal information of military borrowers to circumvent their protected status. The CFPB also found that TitleMax increased loan payments for borrowers by charging unlawful fees.”
According to the Consent Order, the CFPB found that TitleMax charged non-file-insurance fees that did not benefit the consumer or was used to obtain non-file-insurance coverage and violated the Military Lending ACT (MLA) by loans that exceeded the 36% cap. Ultimately, the CFPB found that TitleMax violated the Truth in Lending Act, the MLA, and the Consumer Financial Protection Act.
Under the Consent Order, TitleMax is prohibited from charging/collecting non-file-insurance fees when a recorded lien already secures the loan, when the loan is unsecured, or fails to obtain non-file-insurance coverage. TitleMax is also prohibited from extending/servicing loans that do not comply with the MLA. The Consent Order also requires TitleMax to create a compliance plan and compliance committee to ensure that these violations do not continue. Finally, the Consent Order requires TitleMax to set aside $5.05 million for purposes of providing redress to affected consumer and pay a $10 million civil money penalty.
While credit unions are generally more limited in the interest rate they can charge and may not be in danger of surpassing the MLA 36% cap, credit unions may still want to review whether they charge the same fees as TitleMax or offer the same type of loans.
CFPB’s Action Against RMK Financial
The second action is the CFPB’s enforcement action against RMK Financial Corp. d/b/a Majestic Home Loan or MHL (RMK Financial) for continued “deceptive mortgage advertising practices.” On February 27th, the CFPB filed a Consent Order in the action. This action follows on action taken by the CFPB against RMK financial in 2015. According to the consent order, the CFPB found that the RMK Financial:
· Tricked military families about RMK Financials’ relationship with the federal government;
o Specifically, “RMK sent advertisements that misrepresented that RMK was, or was affiliated with, the VA or the FHA, that the VA or FHA sent the notices, or that the advertised loans were provided by the VA or FHA.”
· Deceived consumers about interest rates and key terms, such as by showing the interest rate more conspicuously than the APR;
· Misrepresented loan requirements and lied about projected savings from refinancings;
o The CFPB asserts that RMK Financial misrepresented that certain benefits were time limited, misrepresented that military families could obtain a VA cash-out refinancing without an appraisal and regardless of income/credit score, and misrepresented the amount of monthly payments or annual savings.
Under the Consent Order, RMK Financial is required to do the following:
· Exit the mortgage loan business;
o Under the Consent Order, RMK Financial is permanently banned from engaging in any mortgage lending activity including participating/receiving remuneration from mortgage lending or assisting others in doing so.
· Pay a civil money penalty of $1 million.
Credit union’s that provide mortgage loans may want to further review the Consent Order, as it discusses the violations in more depth. Credit unions should also note that part of the CFPB’s consideration in this case is the fact the RMK Financial is a repeat offender. As noted in their proposal to create a repeat offender registry and with the creation of a repeat offender unit, the CFPB is targeting repeat offenders. Credit union’s that have been a part of an enforcement action may want to take special care to ensure that their programs are compliant.
Risk Management Seminar | Louisville, KY
Understand and prepare your credit union for the most severe internal and external threats. Plus, earn your NAFCU Certified Risk Manager (NCRM) credential when you pass the exam -- or recertify by attending (no exam required!).
About the Author
Keith Schostag, NCCO, Senior Regulatory Compliance Counsel, NAFCU
Keith Schostag joined NAFCU as regulatory compliance counsel in February 2021. In this role, Keith assists credit unions with a variety of compliance issues.