Lender charged 200% interest to military families for pawn loans, CFPB says
U.S. military families are being socked with annual interest rates sometimes exceeding 200% on pawn loans they've taken out from a Texas company, a violation of a federal law that caps how much lenders can charge, a government financial watchdog alleged in a lawsuit Friday.
The Consumer Financial Protection Bureau, or CFPB, filed the complaint in the U.S. District Court for Northern Texas in Fort Worth. The CFPB lawsuit accuses Cash America West and FirstCash of disobeying the Military Lending Act, which limits the annual interest rate on a loan for military personnel or their family to 36%.
CFPB officials said in court documents that they warned Cash America in 2013 about overcharging on interest rates but the company kept doing it, even after a merger with FirstCash in 2016. Between June 2017 and May 2021, the combined companies approved more than 3,600 loans to more than 1,000 borrowers with interest rates higher than the 36% threshold, the CFPB claimed.
FirstCash dismissed the CFPB's allegation.
"FirstCash deeply respects members of our military and their families," the company said in an emailed statement.. "We believe the allegations by the CFPB are without merit. We will seek to engage with the CFPB and respond to the allegations appropriately."
"Repeat offender"
FirstCash operates more than 2,800 pawn shops across the U.S. and Latin America. The publicly traded company has reported roughly $1.2 billion in revenue so far this year and is valued by the stock market at about $3.1 billion. CEO Rick Wessel said in an earnings call with analysts last month that the pawnshops have "earned our reputation as a trusted brand" among borrowers.
The CFPB took a dimmer view.
"FirstCash is a repeat offender and cheated military families over and over again," CFPB Director Rohit Chopra said in a statement Friday. "FirstCash and Cash America West gouged military families and robbed them of their rights to go to court."
The loans originated in Arizona, Nevada, Utah and Washington, and some of them had annual interest rates "frequently exceeding 200%," the CFPB stated in court documents.
The CFPB is asking a Texas judge to force FirstCash to stop collecting debt on the 3,600 loans and to "order defendants to pay damages, restitution and other monetary relief to consumers," court documents state.
CFPB serves notice
The FirstCash lawsuit suggests the CFPB is returning to its roots as a federal watchdog agency, born during the Obama administration in the wake of the financial crisis, charged with protecting Americans from financial abuse, one consumer advocate told CBS MoneyWatch.
"The CFPB is back," said Mike Litt, consumer campaign director at U.S. PIRG. "Today's lawsuit let everyone know that breaking the law, cheating our service members and doing so repeatedly are not going to fly on Director Chopra's watch."
Under former President Donald Trump, the CFPB dialed back its oversight of financial firms, consumer advocates say.
Pawn loans are different from a mortgage or an auto loan because those sources of credit come from a bank and are based on a consumer's credit score. Pawn loans are based strictly on the value of a tangible item — like a wedding ring or a television set — that a person brings to a pawnshop in return for the loan. As a result, pawn shops do not check a person's credit score and the interest rate on pawn loans vary wildly from state to state.
The average pawn loan is about $150, according to 2018 survey data from the National Pawnbrokers Association, the most recent figure the group has.
FirstCash shares fell almost 8% in Friday trading to about $78 a share.