Government Sues Pawnbrokers for Deceiving Consumers Regarding Loan Costs
The lawsuit claims that the company misstated charges associated with pawn loans
The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against B&B Pawnbrokers claiming that the company deceived consumers regarding the actual cost of its pawn loans per year.
The agency claims that B&B illegally misstated the charges associated with these loans. It hopes to stop the company's illegal practices, obtain compensation for its victims, and impose penalties.
"When consumers take out a loan, the lender by law must tell them the terms, including the actual annual cost of the loan," said CFPB Director Richard Cordray. "B&B Pawnbrokers deceived consumers about what that true cost was. We are taking this action to put a stop to it and seek relief for consumers who were wronged."
B&B Pawnbrokers originates pawn and auto title loans. According to the CFPB, the company deceived customers regarding loan costs in more than 2,400 contracts. The agency specifically claims that the company illegally provided a misleadingly low annual percentage rate (APR) for the loans that did not include all the fees and charges included, thereby massively understating the cost of the loan to consumers. For instance, when B&B made a loan of $200 due in one month, it charged the customer a $10 finance charge, a $10 storage fee, and a $20 processing fee. Each of these fees constitutes a finance charge necessary for calculating the APR. The sum of all of these fees—$40—yields a 240 percent APR; however, the APR disclosed by B&B was only 120 percent.
The CFPB claims that these practices violated both the Truth in Lending Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. The latter law authorizes the agency to take action against institutions that undertake unfair, deceptive, or abusive acts or practices or in any other way violate federal consumer financial laws. The agency's complaint seeks monetary relief, injunctive relief, and penalties.
In related news, the Commonwealth of Virginia has also sued B&B for violating the Virginia Consumer Protection Act.