The Fourth Circuit has issued another significant decision involving TitleMax's efforts to continue making high-interest title loans to residents of states that restrict or prohibit those loans.
In TitleMax of South Carolina, Inc. v. Spicher, the Fourth Circuit largely affirmed dismissal of TitleMax's federal lawsuit challenging Pennsylvania's efforts to enforce its consumer lending laws against loans originated across the border in South Carolina. Rather than deciding the ultimate legality of the loans themselves, the court held that federal courts should not interfere with Pennsylvania's ongoing administrative enforcement proceeding under the doctrine of Younger abstention. The court also held that TitleMax's challenge to a new investigative subpoena was not yet ripe because Pennsylvania had not attempted to enforce it. The only relief TitleMax obtained was a technical one—the subpoena claims were ordered dismissed without prejudice rather than with prejudice.
Summary:
TitleMax argued that because all of its title loans were originated in South Carolina, Pennsylvania could not constitutionally regulate those transactions even when Pennsylvania residents crossed the border to obtain the loans.
The Fourth Circuit disagreed—not on the ultimate merits—but on whether federal court was the proper place to resolve that dispute while Pennsylvania's administrative enforcement case remained pending.
Pennsylvania alleges that TitleMax made more than 5,270 title loans to Pennsylvania residents carrying interest rates as high as 720%, while recording Pennsylvania vehicle liens, collecting payments from Pennsylvania residents, communicating with borrowers in Pennsylvania, and repossessing vehicles located there. Pennsylvania seeks over $52.7 million in civil penalties together with restitution.
Applying the Supreme Court's decisions in Sprint Communications and Younger v. Harris, the Fourth Circuit concluded that Pennsylvania's administrative enforcement proceeding is precisely the type of ongoing quasi-criminal state enforcement action that federal courts generally must leave alone.
The court emphasized that:
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Pennsylvania has a substantial interest in enforcing its consumer lending and usury laws.
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TitleMax has an adequate opportunity to raise its constitutional defenses in the Pennsylvania administrative proceeding and later on judicial review.
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None of the narrow exceptions to Younger abstention applied.
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The separate challenge to Pennsylvania's 2024 investigative subpoena was premature because no court had yet been asked to enforce it.
Notably, the Fourth Circuit carefully distinguished deciding whether TitleMax ultimately wins from deciding where that fight should occur.
Yet Another TitleMax Decision
This is far from the first time courts have confronted TitleMax's interstate lending model.
Earlier this year, the North Carolina Court of Appeals in Ray v. TitleMax of Virginia held that TitleMax's business activities directed toward North Carolina residents were sufficient to establish personal jurisdiction in North Carolina courts. The decision recognized that simply requiring borrowers to drive across the state line does not necessarily insulate an out-of-state lender from the authority of the borrower's home state.
Likewise, in Frazier v. TitleMax Virginia, Inc., the North Carolina Court of Appeals again rejected arguments designed to shield TitleMax's cross-border lending practices from North Carolina law. As I discussed previously:
NC Ct. App. – Frazier v. TitleMax Virginia, Inc.: North Carolina Courts Continue Rejecting...
The federal courts have also rejected procedural attempts by TitleMax to avoid state-court litigation. In White v. TitleMax, the court reminded litigants that the Federal Arbitration Act, standing alone, does not create federal subject matter jurisdiction, requiring TitleMax to litigate elsewhere rather than invoking federal court simply because arbitration was involved.
Taken together, these decisions demonstrate a recurring judicial theme: courts are increasingly unwilling to allow the mere geography of loan origination to defeat legitimate state regulatory interests when lenders deliberately conduct ongoing business with residents of states that prohibit or tightly regulate title lending.
The Bigger Picture
This decision also fits within a larger body of research documenting that prohibited title lending continues despite state-law restrictions.
The Center for Responsible Lending's report, "Under the Radar: Evidence of Prohibited Vehicle-Title Loans Made in 23 States," describes how lenders have increasingly relied upon cross-border lending, internet lending, and affiliated corporate structures to continue making extremely high-interest vehicle title loans to consumers living in states that have attempted to prohibit or restrict those products.
The allegations in the Pennsylvania proceeding—that borrowers traveled to another state to originate loans but then continued servicing those loans, making payments, maintaining collateral, and facing repossession in their home state—bear a striking resemblance to the business model described in that report.
Whether Pennsylvania ultimately prevails on the merits remains to be seen. The Fourth Circuit expressly did not decide that question.
Instead, the court held something narrower—but still significant: TitleMax must make its constitutional arguments in the Pennsylvania administrative and judicial process, not by asking a federal court to halt the state's enforcement action before it runs its course.
As more states continue examining cross-border title lending, this decision is likely to become another important piece of the growing body of appellate authority recognizing that lenders cannot necessarily avoid consumer protection laws simply by locating the loan-closing desk a few miles across a state line.
North Carolina should take notice. Our appellate courts have already shown an increasing willingness to scrutinize TitleMax's cross-border lending practices, and this latest Fourth Circuit decision reinforces that states have a legitimate interest in protecting their residents from allegedly unlawful lending practices, even when the loan documents are signed elsewhere.
It may be time for the North Carolina Attorney General to undertake a comprehensive investigation into whether TitleMax's lending practices violate North Carolina's longstanding prohibition on consumer title lending and other consumer protection statutes. If Pennsylvania believes more than 5,000 loans to its residents warrant investigation and potential enforcement, North Carolina should determine whether similar conduct has occurred here.
Bankruptcy courts may also have an important role to play. When TitleMax files proofs of claim in North Carolina bankruptcy cases seeking payment on loans that could be illegal or unenforceable under North Carolina law, those claims deserve careful scrutiny. Both the Bankruptcy Administrators and Chapter 13 Trustees have independent responsibilities to review claims filed in bankruptcy cases and, where appropriate, object to claims that may not be enforceable under applicable nonbankruptcy law. While the ultimate validity of any particular claim will necessarily depend on the specific facts and governing law, these recent appellate decisions suggest that cross-border title loans should not simply be assumed to be enforceable because the loan closing occurred in another state.
Ultimately, consumer protection statutes are only as effective as their enforcement. If lenders can routinely evade state lending laws simply by directing borrowers to drive across a state line, legislative protections become largely illusory. The growing body of litigation involving TitleMax suggests that courts are increasingly unwilling to accept that proposition without careful examination of the lender's entire course of dealing with borrowers in the allegedly protected state.
To read a copy of the transcript, please see:
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