CFPB Action Against Presto Auto Loans Explained
How federal regulators challenged Presto Auto Loans’ title loan ads and what it means for borrowing rules.
The Consumer Financial Protection Bureau (CFPB) brought an enforcement action against Presto Auto Loans, Inc., an Arizona-based vehicle title lender, for allegedly advertising loan costs in a way that did not meet federal disclosure requirements for consumer credit. The case centered on how the company promoted interest rates online and whether those ads clearly communicated the true cost of borrowing under the Truth in Lending Act (TILA) and its implementing regulation, Regulation Z.
This article breaks down the key issues in the case, explains how title loans work, and highlights what consumers can learn about reading loan advertisements and understanding annual percentage rates (APRs).
Background: Who Is Presto Auto Loans and What Are Title Loans?
Presto Auto Loans, Inc. is one of several companies that offered vehicle title loans in Arizona, a state where high-cost title lending is permitted under specific state statutes governing so-called “secondary motor vehicle finance transactions.” These businesses typically extend short-term, high-interest loans secured by a borrower’s vehicle title.
Auto title loans are a form of secured, small-dollar credit in which a consumer uses the title to their vehicle as collateral. If the borrower cannot repay the loan as agreed, the lender may repossess and sell the vehicle, sometimes leaving the borrower without transportation and, in some circumstances, still owing money if the sale does not cover the full debt.
How Auto Title Loans Typically Work
- The borrower owns a vehicle (or has sufficient equity in it) and signs over a lien on the title to the lender.
- The lender advances a lump sum, often a fraction of the car’s value.
- The loan is usually short-term with very high interest rates, frequently in the triple digits on an annualized basis in states that allow such pricing.
- If the consumer cannot repay, they may “roll over” or renew the loan, incur additional charges, or face repossession.
Federal law does not cap the interest rate for such loans, but it does require clear disclosure of the cost of credit, especially the annual percentage rate.
The Future of AI: Preventing a Big Tech Monopoly >
The CFPB’s Enforcement Action: Overview
In 2016, the CFPB filed a series of administrative actions against five Arizona title lenders – including Presto Auto Loans – alleging violations of the Truth in Lending Act for failing to properly disclose APRs in online advertisements.
| Lender | Business Type | Location/Scope | CFPB Allegation |
|---|---|---|---|
| Presto Auto Loans, Inc. | Vehicle title loans | Formed in Arizona; markets online to Arizona consumers | Advertised periodic interest without required APR in online ads |
| Auto Cash Leasing, LLC | Vehicle title loans | Arizona, online marketing | Similar TILA advertising issues alleged |
| Interstate Lending, LLC | Vehicle title loans | Arizona, online marketing | Similar TILA advertising issues alleged |
| Oasis Title Loans, LLC | Vehicle title loans | Arizona, online marketing | Similar TILA advertising issues alleged |
| Phoenix Title Loans, LLC | Vehicle title loans | Arizona, online marketing | Similar TILA advertising issues alleged |
The CFPB opened administrative adjudication proceedings rather than going initially to federal district court. Under the CFPB’s procedures, such a case is heard by an Administrative Law Judge (ALJ), who conducts hearings and issues a recommended decision; the CFPB Director then issues a final order, which can be appealed to a federal court.
Key Legal Issue: Advertising Periodic Rates Without APR
The central allegation was that Presto Auto Loans and the other lenders advertised periodic interest rates for their loans online—such as a monthly rate—without also including the corresponding annual percentage rate, as required by TILA and Regulation Z.
Truth in Lending Act and APR Disclosure
The Truth in Lending Act requires creditors to disclose the cost of consumer credit in a uniform way so that consumers can compare offers across lenders. Regulation Z implements TILA and specifies detailed rules for advertising, including when and how APRs must be displayed.
In particular, when an advertisement for consumer credit mentions certain terms like a periodic rate or monthly payments, TILA and Regulation Z generally require that the ad also state the annual percentage rate, using that term, and make it clear and conspicuous.
What the CFPB Alleged About the Ads
- Some online promotions quoted a monthly interest rate but did not state the APR.
- At least one lender suggested that consumers multiply the periodic rate by 12 to determine the cost of the loan, without clearly labeling that number as the APR and without explaining the legal requirement to state it.
- From at least July 6, 2016, the CFPB alleged that these practices violated the TILA advertising provisions.
The CFPB’s position was that, by omitting the APR while highlighting periodic rates, the advertisements could understate the true cost of borrowing and impede consumers’ ability to compare products.
Why APR Matters More Than Monthly or Periodic Rates
The annual percentage rate (APR) is a standardized measure of the total cost of credit, expressed as a yearly rate that incorporates interest and certain fees. This makes it easier to compare different loans, even when they have different fee structures or repayment schedules.
Periodic Rate vs. APR
| Feature | Periodic Rate (e.g., Monthly) | Annual Percentage Rate (APR) |
|---|---|---|
| Time frame | Short period (month, week, or day) | Full year |
| What it shows | Interest charged for one period only | Standardized yearly cost including interest and certain fees |
| Consumer comparability | Difficult to compare across lenders | Designed for apples-to-apples comparisons |
| Regulatory status | Can trigger additional disclosure duties | Must be disclosed clearly once certain terms are advertised |
For high-cost products like title loans, the difference between a periodic rate and the equivalent APR can be stark. For example, a monthly interest rate of 10 percent equates to an APR around 120 percent before adding certain fees; if fees are financed, the APR can be significantly higher. Arizona law historically has allowed annual rates over 200 percent for some title loans, illustrating why annualized disclosure is critical for transparency.
CFPB’s Requested Remedies and Enforcement Tools
In actions like the one involving Presto Auto Loans, the CFPB can seek multiple forms of relief under federal consumer financial law. In this case, the Bureau initiated administrative proceedings and sought:
- Civil monetary penalties for the alleged violations of TILA’s advertising rules.
- Administrative orders to require the lenders to correct their advertising practices and bring disclosures into compliance.
- Publication of the Notices of Charges after a short waiting period, consistent with the CFPB’s Rules of Practice for Adjudication Proceedings.
Ultimately, enforcement actions may lead to consent orders, where the company agrees to specific conditions without admitting or denying the allegations, or to contested decisions by the Director and, on appeal, the courts.
How This Case Fits Into the Broader Regulation of Title Loans
The Presto Auto Loans case sits at the intersection of federal disclosure law and state-level oversight of high-cost lending. Arizona allows title loan products under a separate statutory framework from its general small-loan law, which caps rates at 36 percent APR. Advocacy groups have raised concerns that title loans can mirror many of the risks associated with payday loans, including debt cycles and repossession of essential vehicles.
Federal vs. State Roles
- States decide whether title lending is allowed, what maximum rates may be charged, and what licensing standards apply.
- The CFPB focuses on federal consumer financial laws such as TILA, the Consumer Financial Protection Act, and, in some cases, prohibitions on unfair, deceptive, or abusive acts or practices (UDAAP).
- Even when a state permits very high interest rates, lenders must still meet federal standards for clear and accurate disclosure.
Congress has periodically reviewed the CFPB’s approach to small-dollar lending, including its enforcement and rulemaking around payday and title loans, reflecting ongoing debate about how best to balance access to credit and consumer protection.
Practical Lessons for Consumers Viewing Loan Ads
Regardless of the outcome of any specific enforcement action, the allegations against Presto Auto Loans highlight several practical steps consumers can take when evaluating online credit offers.
Checklist for Evaluating a High-Cost Loan Advertisement
- Look for the APR: If an ad mentions a monthly, weekly, or other periodic rate, check whether it clearly states the annual percentage rate. If the APR is missing or hard to find, treat that as a warning sign.
- Ask about total repayment: Find out how much you will repay in total (principal plus all interest and fees) if you make payments on schedule.
- Consider alternatives: Before pledging your vehicle title, compare lower-cost options such as credit union loans, payment plans with creditors, or assistance programs, where available.
- Understand the repossession risk: If you cannot repay a title loan, you may lose your vehicle, which can affect your ability to work or meet daily obligations.
- Save copies of ads: If you decide to apply, save screenshots of any online advertisements, as they may be useful if you later believe disclosures were inaccurate.
Frequently Asked Questions (FAQs)
Q1: What exactly did the CFPB say Presto Auto Loans did wrong?
According to the CFPB’s public materials, the Bureau alleged that Presto Auto Loans advertised title loan interest using a periodic rate, such as a monthly rate, on its website without also stating the legally required annual percentage rate for the loan, which is required under the Truth in Lending Act for such advertisements.
Q2: Does this case mean that title loans are illegal?
No. In states like Arizona, title loans are permitted under specific state laws that outline allowable rates and terms. The CFPB’s case focused on federal disclosure requirements for advertisements, not on whether title lending itself is prohibited.
Q3: How does the CFPB’s administrative process work?
For actions like this one, the CFPB may issue a Notice of Charges, which begins an administrative adjudication. An Administrative Law Judge conducts hearings and issues a recommended decision, the CFPB Director issues a final order, and that decision can then be appealed to a federal court.
Q4: What is the difference between interest rate and APR?
The nominal interest rate typically reflects the charge for borrowing principal over a certain period, while the APR is a broader measure that annualizes the cost of credit and, under federal rules, includes certain additional finance charges. The APR is the standard figure required in advertisements and disclosures so that consumers can compare different loans on the same basis.
Q5: Where can I learn more about my rights in credit advertising?
The CFPB and the Federal Reserve provide summaries of the Truth in Lending Act and Regulation Z, explaining consumers’ rights regarding loan disclosures, credit card solicitations, and advertising rules. State regulators and attorneys general often publish guidance specific to products like title loans and payday loans, especially in states that permit high-cost lending.
References
- Truth in Lending (Regulation Z) — Consumer Financial Protection Bureau. 2022-07-01. https://www.consumerfinance.gov/rules-policy/regulations/1026/
- CFPB Sues Five Arizona Title Lenders for Failing to Disclose Loan Annual Percentage Rate to Consumers — Consumer Financial Protection Bureau. 2016-09-21. https://www.consumerfinance.gov/about-us/newsroom/cfpb-sues-five-arizona-title-lenders-failing-disclose-loan-annual-percentage-rate-consumers/
- Presto Auto Loans, Inc. – Enforcement Action — Consumer Financial Protection Bureau. 2016-09-20 (last modified date listed on page). https://www.consumerfinance.gov/enforcement/actions/presto-auto-loans-inc/
- Wrong Way: Wrecked by Debt – Auto Title Lending in Arizona — Consumer Federation of America & Center for Economic Integrity. 2016-01-26. https://consumerfed.org/wp-content/uploads/2016/01/160126_wrongway_report_cfa-cei.pdf
- Hearing on the 2018 Semi-Annual Report of the Bureau of Consumer Financial Protection — U.S. House of Representatives, Committee on Financial Services. 2018-04-11. https://www.govinfo.gov/content/pkg/CHRG-115hhrg31417/pdf/CHRG-115hhrg31417.pdf
- Presto Auto Loans, Inc. – Administrative Adjudication Docket — Consumer Financial Protection Bureau. 2016-12-21. https://www.consumerfinance.gov/administrative-adjudication-proceedings/administrative-adjudication-docket/presto-auto-loans-inc/
Similar Articles
Read full bio of medha deb
