FirstCash Holdings Hit with Class Action After CFPB Sues Over Allegedly Illegal Loans to Military Members

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A proposed class action alleges pawn shop operator FirstCash Holdings has run afoul of federal securities laws by withholding from investors that it issued thousands of illegal loans to active-duty military service members and their dependents at usurious interest rates over the course of nearly three years. 

The 24-page complaint, filed on January 14 in Texas, comes a little more than two months after the Consumer Financial Protection Bureau (CFPB) sued FirstCash and subsidiary Cash America West, Inc. over charges that the companies violated the federal Military Lending Act by charging more than the permitted 36 percent annual interest rate on 3,600 pawn loans made to more than 1,000 active-duty service members and their dependents. The CFPB also alleged FirstCash had violated a 2013 order from the agency prohibiting the company from future Military Lending Act violations, the suit says. 

The proposed class action maintains that FirstCash investors, particularly those who bought securities in the pawn shop operator between February 1, 2018 and November 12, 2021, were injured financially when the news of the CFPB lawsuit against the company sent its stocks tumbling by more than eight percent on November 12 and over subsequent days as the market “digested the news.” 

“As a result of defendants’ scheme to defraud investors and their materially false and misleading statements issued during the Class Period, the price of FirstCash shares traded at artificially inflated prices,” the case alleges. 

According to the complaint, FirstCash offers through its pawn stores nationwide non-recourse loans, and buys merchandise from customers in exchange for short-term cash advances. The suit alleges that when extending loans, FirstCash does not investigate an individual’s creditworthiness, and relies primarily on the marketability and sale value of the items the person puts up for collateral when making credit decisions. 

In 2013, Cash America, who merged with FirstCash in 2016, entered into a consent order with the CFPB as a result of allegedly making loans to military members or their dependents in violation of the Military Lending Act, a law that protects active-duty service members from being charged exorbitant interest rates on consumer loans. The CFPB said that in addition to the loan offerings themselves, Cash America’s violations related to debt collection, a failure to prevent or timely detect problematic conduct and a failure to maintain mandatory records, the complaint says.

In the consent order, Cash America agreed to end the alleged violations and ensure future compliance with the CFPB’s rules, as well as pay a $5 million fine and deposit $8 million into an account to provide relief to affected service members, the lawsuit states. 

The case goes on to say that with the expansion of the Military Lending Act in 2015 to cover more credit products, including pawn loans, FirstCash was prohibited from issuing to service members loans with interest rates higher than 36 percent. At this time, the company claimed that it was “unable to offer any of its current credit products, including pawn loans, to members of the U.S. military or their dependents,” and also stated that it had in place robust systems, policies and procedures to ensure its regulatory compliance with the Military Lending Act, according to the suit. 

Despite these assurances, and unbeknownst to investors, the lawsuit alleges, FirstCash was engaged in widespread violations of the Military Lending Act between February 2018 and the date it was sued by the CFPB in November 2021. As news of the CFPB action broke, FirstCash’s stock price fell more than eight percent before continuing to tumble over ensuing days, dropping another $10 per share by November 18, the suit says. 

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