U.S. military families face annual interest rates sometimes exceeding 200% on pawn shops they have taken out with a Texas company, a violation of a federal law that caps the amount lenders can charge, a government financial watchdog alleged in a Friday lawsuit. .
The Consumer Financial Protection Bureau, or CFPB, filed the lawsuit with the US District Court for North Texas in Fort Worth. CFPB lawsuit accuses Cash America West and FirstCash of disobeying Military Lending Act, which limits annual amount interest rate on a loan for soldiers or their families at 36%.
CFPB officials have said in court documents that they warned Cash America in 2013 against overcharging interest rates, but the company continued to do so, 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 above the 36% threshold, according to the CFPB.
FirstCash dismissed the CFPB’s claim.
“FirstCash deeply respects the members of our military and their families,” the company said in an emailed statement. “We believe that the CFPB’s allegations are without merit. We will seek to engage with the CFPB and respond to the allegations as appropriate.”
FirstCash operates more than 2,800 pawn shops in the United States and Latin America. The publicly traded company has reported revenue of around $ 1.2 billion so far this year and is valued by the stock market at around $ 3.1 billion. CEO Rick Wessel said in a conference call with analysts last month that pawn shops have “earned our reputation as a brand of trust” among borrowers.
The CFPB took a darker point of view.
“FirstCash is a repeat offender and has cheated on military families over and over again,” CFPB director Rohit Chopra said in a statement. Friday. “FirstCash and Cash America West have scammed military families and denied them their rights to go to court.”
The loans came from Arizona, Nevada, Utah and Washington, and some of them had annual interest rates “often exceeding 200%,” the CFPB said in court documents.
CFPB asks Texas judge to force FirstCash to stop collecting debts on 3,600 loans and “order defendants to pay damages, restitution and other pecuniary relief to consumers,” documents say judicial.
The CFPB notifies
FirstCash lawsuit suggests CFPB is going back to its roots as a federal watchdog, born under the Obama administration in the aftermath of the financial crisis, tasked with protecting Americans from financial abuse, a consumer advocate said at CBS MoneyWatch.
“The CFPB is back,” said Mike Litt, consumer campaign manager at US PIRG. “Today’s trial has let everyone know that breaking the law, deceiving our military and doing it over and over is not going to fly under the watch of Director Chopra.”
Under former President Donald Trump, the CFPB canceled its oversight of financial companies, according to consumer advocates.
Pawn shops are different from a mortgage or car loan because these sources of credit come from a bank and are based on a consumer’s credit rating. Pawn shops are strictly based on the value of a tangible item – like a wedding ring or a television set – that a person brings to a pawnshop in exchange for the loan. As a result, pawn shops do not check a person’s credit score, and the interest rate on pawn shops varies widely from state to state.
The average pawnshop is around $ 150, according to data from the National Pawnbrokers Association’s 2018 survey, the group’s most recent figure.
FirstCash shares fell nearly 8% on Friday to around $ 78 per share.