COX v. COMMUNITY LOANS OF AMERICA INC et al

Filing 39

ORDER denying 32 Motion to Dismiss Complaint; granting 20 Motion for Preliminary Injunction as to the named Plaintiffs and denying the Motion for Preliminary Injunction as to absent putative class members. Ordered by Judge Clay D. Land on 03/08/2012. (CGC)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF GEORGIA
COLUMBUS DIVISION
JASON M. COX, et al.,

*

Plaintiffs,

*

vs.

*

COMMUNITY LOANS OF AMERICA,
INC., et al.,

*

CASE NO. 4:11-cv-177 (CDL)
*
Defendants.
*
O R D E R
This putative class action involves vehicle title pawns.1
Plaintiffs Jason M. Cox, Estevan Castillo and Leo Thomas Tookes
Jr.

(collectively,

“Plaintiffs”)

are

members

of

the

United

States Military who entered vehicle title pawn transactions with
one of the Defendants and were later unable to redeem their car
titles.
are

Plaintiffs’ vehicles have either been repossessed or

subject

vehicle

to

title

repossession.

pawn

Plaintiffs

transactions

are

void

allege
from

that

the

their

inception

because they are prohibited by the federal Military Lending Act
(“MLA”),

10 U.S.C. §

987.

Defendants

Community

Loans

of

America, Inc., Alabama Title Loans, Inc. and Georgia Auto Pawn,
Inc. (collectively, “Defendants”) filed a Motion to Dismiss (ECF
No.

1

32)

relying

on

an

arbitration

clause

in

the

Plaintiffs refer to the transactions as “vehicle title
Defendants refer to the transactions as “vehicle title pawns.”

relevant

loans.”

contracts.

Defendants maintain that the arbitration clauses are

enforceable and the transactions do not violate the MLA.

As the

Court announced during the hearing on the motion, Defendants’
motion is denied.

This Order sets forth the reasons for the

ruling.
The Court also observes that Plaintiffs have filed a Motion
for

Preliminary

Injunction

(ECF

No.

20),

seeking

preliminary

injunctive relief for the named Plaintiffs and all potential
members

of

the

putative

class.

Defendants

have

agreed

to

refrain from taking action against the named Plaintiffs and have
represented

that

they

Castillo and Tookes

will

not

repossess

the

vehicles

of

during the pendency of this litigation.2

Plaintiffs’ Motion for Preliminary Injunction (ECF No. 20) is
therefore granted as to the named Plaintiffs.
withdrawn

their

request

for

a

preliminary

Plaintiffs have
injunction

as

to

absent putative class members, so the Motion for Preliminary
Injunction is denied as to the absent putative class members.
MOTION TO DISMISS STANDARD
In seeking dismissal of Plaintiffs’ Complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6), Defendants argue that
Plaintiffs’ claims must be arbitrated as a matter of law based
on a facial examination of the Complaint.

When considering a

12(b)(6) motion to dismiss, the Court must accept as true all
2

Cox’s vehicle has already been repossessed and resold.

2

facts

set

forth

in

the

plaintiff=s

complaint

and

limit

its

consideration to the pleadings and exhibits attached thereto.
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007); Wilchombe
v. TeeVee Toons, Inc., 555 F.3d 949, 959 (11th Cir. 2009).

“To

survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief
that is plausible on its face.’”

Ashcroft v. Iqbal, 556 U.S.

662, ___ 129 S. Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S.
at 570).
In the present context, the Court must determine whether
Plaintiffs

have

sufficiently

alleged

that

their

title

pawn

transactions violated the MLA, and thus the arbitration clauses
in their agreements are unenforceable.

Defendants argue that

the transactions in question involve Plaintiffs actually selling
their vehicles to Defendants while retaining the right to repurchase them by paying back the sale price plus a fee that is a
percentage of the sale price.
title

pawn

transactions

are

Defendants maintain that such

not

consumer

credit

transactions

within the meaning of the MLA, and therefore, are not prohibited
by the MLA.

Plaintiffs contend that the transactions are loans

that are secured by the titles to their vehicles, and as such,
are prohibited consumer credit transactions under the MLA.

At

this stage of the proceedings, the Court examines Plaintiffs’
factual allegations in the Complaint along with any exhibits to

3

the

Complaint.

Construing

all

reasonable

inferences

in

Plaintiffs’ favor, the Court must determine whether Plaintiffs
have

sufficiently

alleged

that

the

transactions

are

credit

transactions prohibited by the MLA.
FACTUAL ALLEGATIONS
The

Plaintiffs

Plaintiffs

are

allege

members

of

Compl. ¶¶ 3-5, ECF No. 18.
vehicle title loans.

the

following

the

United

in

their

States

Complaint.

military.

Am.

Defendants are businesses that make

Id. ¶¶ 7, 10, 13.

A vehicle title loan is

a transaction in which the customer pledges or signs over his
car title to a vehicle title loan company, and in return the
customer receives cash.
he

pays

the

loan

number of days.

The customer gets his car title back if

amount

plus

a

percentage

within

a

certain

Each Plaintiff obtained a vehicle title loan

from one of the Defendants.
I.

Plaintiff Jason Cox
Plaintiff Jason Cox, a staff sergeant in the U.S. Army,

obtained a vehicle title loan on his 2002 Dodge Durango from
Defendant Alabama Title Loans, Inc. (“Alabama Title Loans”) in
Phenix City, Alabama.

Id. ¶¶ 33, 35.

presented his military ID.

Id. ¶ 34.

In entering the loan, Cox
The principal amount of

the loan was $3,000.00, and it was repayable in thirty days.
Id. ¶ 33; accord Am. Compl. Ex. C at 1, Cox Pawn Agreement &
Disclosure

1,

ECF

No.

18-1

at

4

14

[hereinafter

Cox

Pawn

Agreement].

The annual percentage rate for the loan was 146%.

Am. Compl. ¶ 36; Cox Pawn Agreement 1.

As a condition of the

loan, Cox relinquished the title to his truck.

Am. Compl. ¶ 35.

Cox’s pawn agreement stated that Cox was “pledging” the
title

to

his

Dodge

Durango

to

Alabama

Title

Loans

“on

the

condition that it may be redeemed for a fixed price within a
stated period of time.”
execute

all

documents

Cox Pawn Agreement 1.
necessary

and

Cox agreed “to

appropriate

to

record

[Alabama Title Loans’] lien on the Certificate of Title.”

Id.

The agreement stated that Cox was “giving a security interest in
the certificate of title” to the Dodge Durango, and it contained
certain disclosures required under the federal Truth in Lending
Act, 15 U.S.C. § 1601 et seq.

(“TILA”), including the “annual

percentage rate” (“The cost of your credit as a yearly rate”),
the “finance charge” (“The dollar amount the credit will cost
you”), and the “amount financed” (“The amount of credit provided
to you”).
provision.
Cox’s

Id.

The pawn agreement also contained an arbitration

Id. at 2.
loan

was

“rolled

over,

multiple times.

Am. Compl. ¶ 37.

Pledgor,”

stated

renewed

which

that

his

and/or

refinanced”

Cox received a “Reminder to
“automobile

pledged as security for the pawn.”

title

has

been

Am. Compl. Ex C at 11,

Reminder to Pledgor, ECF No. 18-1 at 24.

The Reminder stated

that the title pawn “is a more expensive way of borrowing money”

5

and asked Cox to acknowledge that he “borrowed” a certain sum
that he would need to repay in order to redeem the certificate
of title on his truck.

Id.

The Reminder also asked Cox to

acknowledge that if he did not pay the amount due, he would be
“placing continued ownership of [his] automobile at risk.”

Id.

After nearly a year of “rolling over” the vehicle title loan,
Cox could not afford to pay the balance due to redeem the title
and could not afford the interest and finance payment required
to roll over the loan again.

Am. Compl. ¶¶ 42-43.

The Dodge

Durango was repossessed from Cox’s home at Ft. Benning, Georgia.
Id. ¶¶ 45-47.
II.

Plaintiff Estevan Castillo
Plaintiff Estevan Castillo, a master sergeant in the U.S.

Army, obtained a vehicle title loan on his 1994 Chevrolet Camaro
from Defendant Georgia Auto Pawn, Inc. (“Georgia Auto Pawn”) on
Victory Drive in Columbus, Georgia.

Am. Compl. ¶¶ 49, 52.

In

entering the loan, Castillo presented his military ID and his
deployment orders.

Id. ¶ 50.

The principal amount of the loan

was $600.00, and it was repayable in thirty days.
accord

Am.

Agreement

Compl.
&

Ex.

D

at

1,

Disclosure/Receipt

Castillo
1,

[hereinafter Castillo Pawn Agreement].
rate for the loan was 152%.

ECF

Motor
No.

Id. ¶ 49;

Vehicle
18-1

at

Pawn
39

The annual percentage

Am. Compl. ¶ 53; Castillo Pawn

6

Agreement 1.

As a condition of the loan, Castillo relinquished

the title to his car.

Am. Compl. ¶ 52.

Castillo’s pawn agreement stated that Georgia Auto Pawn was
“purchasing” the title to Castillo’s Camaro, “on the condition
that it may be redeemed for a fixed price within a stated period
of

time.”

Castillo

Pawn

Agreement

1.

Georgia

Auto

Pawn

notified Castillo that it may charge him a fee “to register a
lien upon the certificate of title.”
that

Castillo

Camaro,

and

was

it

“giving

contained

a

Id.

security

certain

The agreement stated
interest”

disclosures

in

the

required

the

under

TILA, including the “annual percentage rate” (“The cost of your
credit as a yearly rate”), the “finance charge” (“The dollar
amount the credit will cost you”), and the “amount financed”
(“The

amount

of

credit

provided

to

you”).

Id.

agreement also contained an arbitration provision.

The

pawn

Id. at 2.

Castillo’s loan was “deferred, rolled over, renewed and/or
refinanced” multiple times.

Am. Compl. ¶ 54.

Castillo received

a “Reminder to Pledgor,” which stated that his “automobile title
has been pledged as security for the pawn.”

Am. Compl. Ex. D at

4, Reminder to Pledgor, ECF No. 18-1 at 42.

The Reminder stated

that the title pawn “is a more expensive way of borrowing money”
and asked Castillo to acknowledge that he “borrowed” a certain
sum

that

he

would

need

to

repay

certificate of title on his car.

7

Id.

in

order

to

redeem

the

The Reminder also asked

Castillo to acknowledge that if he did not pay the amount due,
he would be “placing continued ownership of [his] automobile at
risk.”

Id.

After approximately a year of “rolling over” the

vehicle title loan, Castillo could not afford to pay the balance
due to redeem the title and could not afford the interest and
finance

payment

required

Compl. ¶¶ 59-60.
Camaro.

to

roll

over

the

loan

again.

Am.

Defendants have threatened repossession of the

Id. ¶ 61.

III. Plaintiff Leo Thomas Tookes, Jr.
Plaintiff Leo Thomas Tookes, Jr., a sergeant in the U.S.
Marines, obtained a vehicle title loan on his 1999 Jeep Grand
Cherokee from Georgia Auto Pawn at its location in Kingsland,
Georgia.

Am. Compl. ¶ 63, 65.

Tookes had previously obtained a

vehicle title loan from Georgia Auto Pawn; in entering the prior
loan, Tookes presented his military ID.

Id. ¶¶ 63-64.

The

principal amount of the second loan was $2,000.00, and it was
repayable in thirty days.

Id. ¶ 68; accord Am. Compl. Ex. E at

4, Tookes Motor Vehicle Pawn Agreement & Disclosure/Receipt 1,
ECF No. 18-1 at 47 [hereinafter Tookes Pawn Agreement].
annual percentage rate for the loan was 152%.
Tookes Pawn Agreement 1.

The

Am. Compl. ¶ 71;

As a condition of the loan, Tookes

relinquished the title to his car.

Am. Compl. ¶ 70.

Tookes’s pawn agreement stated that Georgia Auto Pawn was
“purchasing” the title to Tookes’s Jeep, “on the condition that

8

it may be redeemed for a fixed price within a stated period of
time.”

Tookes Pawn Agreement 1.

Georgia Auto Pawn notified

Tookes that it may charge him a fee “to register a lien upon the
certificate of title.”

Id.

The agreement stated that Tookes

was “giving a security interest” in the Jeep, and it contained
certain disclosures required under TILA, including the “annual
percentage rate” (“The cost of your credit as a yearly rate”),
the “finance charge” (“The dollar amount the credit will cost
you”), and the “amount financed” (“The amount of credit provided
to you”).
provision.

Id.

The pawn agreement also contained an arbitration

Id. at 2.

Tookes’s loan was “deferred[,] rolled over, renewed and/or
refinanced” multiple times.

Am. Compl. ¶ 72.

After nearly a

year of “rolling over” the vehicle title loan, Tookes could not
afford to pay the balance due to redeem the title and could not
afford the interest and finance payment required to roll over
the loan again, which means that the Jeep is subject to the
possibility of repossession.

Am. Compl. ¶¶ 77-79.

DISCUSSION
The central issue in this case is whether Plaintiffs have
adequately

alleged

violations

(“MLA”), 10 U.S.C. § 987.3

of

the

Military

Lending

Act

It is undisputed that if the MLA

3

The “Military Lending Act” is the common name for the John Warner
National Defense Authorization Act for Fiscal Year 2007 § 670,

9

applies,

then

contracts

are

the

arbitration

unenforceable,

provisions

10

U.S.C. §

in

the

relevant

987(e)(3),

and

the

Motion to Dismiss based on the arbitration provision must be
denied.
I.

Military Lending Act Background
In 2006, the U.S. Department of Defense issued a report to

Congress

entitled

“Report

On

Predatory

Lending

Practices

Directed at Members of the Armed Forces and Their Dependents”
(“DoD

Report”).

http://www.defense.gov/pubs/pdfs/report_to_

congress_final.pdf

(last

visited

Mar.

5,

2012).

The

report

focused on “predatory lending” to military personnel, including
car title loans.
lending

to

Id. at 4.

military

The report concluded that predatory

personnel,

including

car

title

loans,

“undermines military readiness, harms the morale of troops and
their

families,

and

adds

volunteer fighting force.”

to

the

cost

Id. at 9.

of

fielding

an

all

The report recommends

prohibiting lenders from using “car title pawns as security for
obligations.”

Id. at 7, 51.

The report also notes a steady and

significant increase in the rate of revoked or denied security
clearances for military personnel due to financial problems; “At
a time when we are at war, this is an unacceptable loss of
valuable talent and resources.”

Id. at 87.

Limitations on Terms of Consumer Credit Extended to Servicemembers and
Dependents, Pub. L. 109-364, 120 Stat. 2083, 2266, codified at 10
U.S.C. § 987.

10

In response to the DoD Report, Congress enacted the MLA.
The MLA provides that a “creditor who extends consumer credit”
to a “covered member of the armed services” “may not impose an
annual percentage rate of interest greater than 36 percent” with
respect to the credit extended.

10 U.S.C. § 987(a), (b).

The

MLA also makes it unlawful for a “creditor to extend consumer
credit to a covered member . . . with respect to which” the
creditor

uses

obligation.”
The

“the

title

of

a

vehicle

as

security

for

the

disclosures

in

10 U.S.C. § 987(e)(5).

MLA

requires

certain

mandatory

connection with the “extension of consumer credit.”
987(c).

The

federal laws.

MLA

expressly

preempts

10 U.S.C. § 987(d).

10 U.S.C. §

inconsistent

state

or

As noted above, Defendants

concede that if the MLA applies to the transactions at issue in
this

case,

then

the

arbitration

agreements are unenforceable.

clauses

in

the

relevant

See 10 U.S.C. § 987(e)(3) (“It

shall be unlawful for any creditor to extend consumer credit to
a covered member or a dependent of such a member with respect to
which . . . the creditor requires the borrower to submit to
arbitration[.]”).

If a “creditor” knowingly violates the MLA,

that is a misdemeanor.

10 U.S.C. § 987(f)(1).

Also, “[a]ny

credit agreement, promissory note, or other contract prohibited
under [the MLA] is void from the inception of such contract.”
10 U.S.C. § 987(f)(3).

11

The MLA does not define “creditor” or “consumer credit.”
Rather,

the

prescribe

statute

directed

regulations

consultation

with

the

the

establishing
Department

of

Secretary
those

of

Defense

definitions

Treasury,

Office

to

after
of

the

Comptroller of the Currency, Office of Thrift Supervision, Board
of

Governors

Commission,

of

the

Federal

Federal
Deposit

Reserve
Insurance

National Credit Union Administration.
(3).

System,

Federal

Corporation,

Trade

and

the

10 U.S.C. § 987(h)(2)(D),

In the final rule adding new regulations to implement the

provisions of the MLA, the Department of Defense stated that
“vehicle title loans should be included within the definition of
consumer

credit,

and

that

covering

consistent with the law’s purpose.”

such

transactions

is

Limitations on Terms of

Consumer Credit Extended to Service Members and Dependents, 72
Fed. Reg. 50,580, 50,586 (Aug. 31, 2007).
The regulations contain the following definitions:
“Creditor” is “a person who is engaged in the business of
extending

consumer

credit

with

respect

transaction covered by this part.”

to

a

consumer

credit

32 C.F.R. § 232.3(e).

“Credit” is “the right granted by a creditor to a debtor to
defer payment of debt or to incur debt and defer its payment.”
32 C.F.R. § 232.3(d).
“Consumer credit” is “closed-end credit offered or extended to
a covered borrower primarily for personal, family or household

12

purposes” and includes “vehicle title loans,” which are defined
as “Closed-end credit with a term of 181 days or fewer that is
secured

by

the

registered

for

borrower”

title
use

other

to

on

than

a

motor
roads

public
a

vehicle,
and

“credit

that

owned

transaction

by

to

has
a

been

covered

finance

the

purchase or lease of a motor vehicle when the credit is secured
by

the

vehicle

being

purchased

or

leased.”

32

C.F.R. §

232.3(b)(1)(ii), (b)(2)(ii) (emphasis added).
“Closed-end credit” is defined as “credit other than ‘open-end
credit’

as

Lending),

that
12

term

CFR

is

part

defined

226.”

in

32

Regulation

C.F.R. §

Z

(Truth

232.3(a).

in

This

definition of “closed-end credit” is therefore identical to the
definition of “closed-end credit” in Regulation Z, which defines
“closed-end

credit”

as

“consumer

credit

credit’ as defined in this section.”

other

than

‘open-end

12 C.F.R. § 226.2(a)(10).

“Open-end credit” is defined in Regulation Z as “consumer credit
extended by a creditor under a plan in which: (i) The creditor
reasonably contemplates repeated transactions; (ii) The creditor
may impose a finance charge from time to time on an outstanding
unpaid

balance;

and

(iii)

The

amount

of

credit

that

may

be

extended to the consumer during the term of the plan (up to any
limit set by the creditor) is generally made available to the
extent

that

any

outstanding

12 C.F.R. § 226.2(a)(20).

balance

is

repaid.”

The Federal Reserve Board promulgated

13

Official

Staff

Interpretations

to

Regulation

Z

and

included

“pawn transactions” as a type of closed-end credit transaction.
12

C.F.R. pt.

226,

(interpretation

Supp.

regarding

I,

12

Subpt.

C.F.R. §

C

¶

17(c)(1)(18)

226.17(c)).

“Pawn

transactions” occur when, “in connection with an extension of
credit, a consumer pledges or sells an item to a pawnbroker
creditor in return for a sum of money and retains the right to
redeem the item for a greater sum (the redemption price) within
a specified period of time.”

Id.

The Department of Defense

specifically adopted the Federal Reserve Board’s Official Staff
Interpretations to Regulation Z.
that

“Regulation

Z

means

any

32 C.F.R. § 232.3(i) (stating
of

the

rules,

regulations,

or

interpretations thereof, issued by the Board of Governors of the
Federal Reserve System to implement the Truth in Lending Act, as
amended,

from

time

to

time,

including

any

interpretation

or

approval issued by an official or employee duly authorized by
the Board of Governors of the Federal Reserve System to issue
such interpretations or approvals.”).
II.

Did Plaintiffs Allege “Vehicle Title Loans”?
The question for the Court is whether, taking the factual

allegations in Plaintiffs’ Complaint to be true and resolving
all reasonable inferences in Plaintiffs’ favor, Plaintiffs have
alleged that the transactions they entered with Defendants are
“vehicle title loans” within the meaning of the MLA.

14

Based on

the allegations in the Complaint and the attachments to the
Complaint, the Court concludes that they have.
Defendants contend that the transactions at issue here are
not “vehicle title loans” within the meaning of the MLA because
the transactions here are creatures of state law that do not
involve “credit” within the meaning of the MLA.

Again, under

the MLA, “credit” is “the right granted by a creditor to a
debtor to defer payment of debt or to incur debt and defer its
payment.”
that

32 C.F.R. § 232.3(d).

Plaintiffs

did

not

take

Defendants’ main argument is

on

“debt”

because

there

is

no

promissory note or other form of promise to pay; rather, the
transaction

was

actually

a

sale

of

a

vehicle

with

the

opportunity to buy it back and the right to continue to use the
vehicle until the time for re-purchasing it expired.
Construing Defendants’ own documents in Plaintiffs’ favor,
however,

Plaintiffs

transactions
agreements
dollar

have

within

state

amount

the

the

the

plausibly
meaning

“cost

credit

of
will

of

alleged
the

MLA.

[Plaintiffs’]
cost

credit

First,

credit,”

[Plaintiffs],”

“amount of credit provided to [Plaintiffs].”
Agreement 1.

consumer

the

“[t]he

and

the

E.g., Cox Pawn

Second, the agreements state that Plaintiffs were

“giving a security interest in the certificate of title” to
their vehicles.

E.g., id.

Third, the agreements state that

Defendants may register a lien on the certificate of title.

15

E.g.,

id.

Fourth,

reiterating
security

that

for

Cox

his

the

and

Castillo

“automobile

pawn,”

each

title

stating

that

received

has

been

pawning

a

notice

pledged
“is

a

as

more

expensive way of borrowing money,” asking that he acknowledge
the

amount

“borrowed,”

and

asking

him

to

acknowledge

that

“continued ownership of [his] automobile” would be “at risk” if
the amount due was not paid.

E.g., Am. Compl. Ex. C at 11,

Reminder to Pledgor, ECF No. 18-1 at 24.
In other words, construing the factual allegations in the
Complaint and the attached agreements in Plaintiffs’ favor, each
Plaintiff

deposited

his

vehicle

title

security for the payment of a debt.

with

a

Defendant

as

Defendants’ own documents

state that Plaintiffs “borrowed” money.

Moreover, a specific

sum of money is due by agreement, and if it is not paid, then
the Plaintiff loses the title to his car and the car itself.
Cf. Black’s Law Dictionary, Debt (9th ed. 2009) (defining “debt”
as “[l]iability on a claim; a specific sum of money due by
agreement or otherwise”).
concludes

that

transactions

they

For all of these reasons, the Court

Plaintiffs
entered

sufficiently

with

Defendants

alleged
are

that

“vehicle

the
title

loans” within the meaning of the MLA.
Defendants focus on Georgia and Alabama law and repeatedly
argue that the transactions in this case “are not loans.”
the

law

of

both

states,

a

“pawn

16

transaction”

is

Under

defined

as

either a “loan on the security of pledged goods” or a “purchase
of pledged goods on the condition that the pledged goods may be
redeemed or repurchased by the pledgor or seller for a fixed
price within a fixed period of time.”
accord Ala. Code § 5-19A-2(3).

O.C.G.A. § 44-12-130(3);

Under Georgia law, a pledgor or

seller “may” redeem or repurchase the pledged goods (the car
title).

O.C.G.A. § 44-12-130(3).

Under Alabama law, a pledgor

does not have any obligation to redeem the pledged goods—meaning
the car title. Ala. Code § 5-19A-6.

Defendants assert that

because the pledgor does not incur any personal liability to
repay the “money advanced” under the law of Georgia and Alabama,
then “pawn transactions” in those states do not involve “credit”
or “debt.”
The

express

preemption

clause

in

the

MLA

“preempts

any

State or Federal law, rule, or regulation, including any State
usury law, to the extent that such law, rule, or regulation is
inconsistent

with

this

section[.]”

10

U.S.C. §

987(d)(1).

Therefore, to the extent that Georgia or Alabama law conflicts
with the MLA, the state law is preempted.
not

matter

that

Alabama

and

Georgia

Accordingly, it does
would

transactions as “pawns” rather than “loans.”

categorize

the

What matters is

that Plaintiffs sufficiently alleged that the transactions they
entered with Defendants involve “credit” and are “vehicle title
loans” within the meaning of the federal law.

17

Thus, even though

the

transactions

under

state

may

law,

not

they

be

may

considered
be

“credit”

considered

transactions

“consumer

credit”

transactions within the meaning of the MLA.
Defendants

argue

that

even

if

the

Court

finds

that

Plaintiffs have sufficiently alleged claims under the MLA, the
law

is

notice

so

vague

that

and

“pawn

ambiguous

that

transactions”

Defendants

like

the

did

ones

not

have

alleged

Plaintiffs’ Complaint were covered under the MLA.

in

Construing

the factual allegations in the Complaint and the attachments to
the Complaint in Plaintiffs’ favor, however, Defendants did have
notice that the transactions would be covered under the MLA.
discussed

above,

Defendants’

own

documents

reference

As
the

“credit” provided to the Plaintiffs and state that Plaintiffs
were “giving a security interest in the certificate of title” to
their vehicles.

E.g., Cox Pawn Agreement 1.

Also, Defendants

appear to acknowledge that the “pawn transactions” are a type of
“closed-end credit transaction” within the meaning of the TILA,
which has the same definition of “closed-end credit transaction”
as the MLA.
Defendants

note

that

the

Federal

Reserve

Board

included

“pawn transactions” as a type of closed-end credit transaction
in

its

Official

C.F.R. pt.

226,

Staff
Supp.

Interpretations
I,

Subpt.

C

¶

to

Regulation

17(c)(1)(18).

Z,

12

Indeed,

Defendants assert that they included TILA disclosures in the

18

relevant agreements because they believed the transactions were
“closed-end

credit”

Defendants

transactions

contend,

however,

within

that

the

because

meaning
the

of

TILA.

Department

of

Defense did not specifically adopt Regulation Z’s definition of
“closed-end credit” (rather, it copied Regulation Z’s definition
of “closed-end credit” and referred to Regulation Z for the
definition of “open-end credit”), the Court should ignore the
Official Staff Interpretation to Regulation Z for purposes of
deciding

the

definition

under the MLA.
Defense

of

a

“closed-end

credit”

transaction

As discussed above, however, the Department of

specifically

adopted

the

Federal

Reserve

Official Staff Interpretations to Regulation Z.

Board’s

32 C.F.R. §

232.3(i).
Even if the Court were to ignore the fact that the Federal
Reserve Board included “pawn transactions” as a type of closedend

credit

transaction,

there

are

other

factors

giving

Defendants notice that the transactions alleged in the Complaint
would

be

covered

under

the

MLA.

The

Department

of

Defense

included “vehicle title loans” in the definition of “consumer
credit.” 32 C.F.R. § 232.3(b)(1)(ii).

The final rule adding new

regulations to implement the provisions of the MLA discusses the
“debt trap” created by “vehicle title loans” and observes that
“[i]n many states these loans can be rolled over by the borrower
several times if the borrower is unable to pay the principal and

19

interest when due. If not paid or rolled over, many states allow
the creditor to repossess the vehicle and in some states the
borrower is not entitled to any portion of the proceeds of the
vehicle sale.”

72 Fed. Reg. at 50,582.

The rule goes on to

observe that “vehicle title loans” contribute to a “cycle-ofdebt”

that

Defense.

is

a

Id.

significant

concern

to

the

Department

of

The Department of Defense stated that “vehicle

title loans should be included within the definition of consumer
credit, and that covering such transactions is consistent with
the law's purpose” and made it clear that its goal was to offer
“protections from high-cost, short-term vehicle title loans.”
Id. at 50,586.
allegations

For all of these reasons, construing the factual

in

the

Complaint

and

the

attachments

to

the

Complaint in Plaintiffs’ favor, the Court concludes that the MLA
is

not

ambiguous

as

to

whether

it

covers

the

transactions

alleged in the Complaint.
Given that Plaintiffs sufficiently alleged claims under the
MLA,

the

arbitration

unenforceable.

provisions

in

10 U.S.C. § 987(e)(3).

their

agreements

are

Accordingly, Defendants’

Motion to Dismiss based on the arbitration provisions must be
denied.
CONCLUSION
For the reasons explained in this Order, Defendants’ Motion
to

Dismiss

(ECF

No.

32)

is

denied.

20

Plaintiffs’

Motion

for

Preliminary Injunction (ECF No. 20) is granted as to the named
Plaintiffs.

Plaintiffs

have

withdrawn

their

request

for

a

preliminary injunction as to absent putative class members, so
the Motion for Preliminary Injunction is denied as to the absent
putative class members.

IT IS SO ORDERED, this 8th day of March, 2012.
S/Clay D. Land
CLAY D. LAND
UNITED STATES DISTRICT JUDGE

21