No Private Right To Sue Title Lender


When a state legislature creates a set of laws that govern title lenders, can a customer use those very laws to sue the lender? Recently a title lender asked the Tennessee Supreme Court to decide that very question.

A group of customers brought a complaint as a proposed class action on behalf of those who had a title pledge loan with a title lender in Tennessee.

According to the customers, in the title pledge transaction, the lender loaned money to each customer in exchange for a security interest in his or her motor vehicle. The customer delivered the certificate of title for the vehicle to the lender while retaining possession of the vehicle for the duration of the loan agreement.

Upon paying the total amount due within a specified period of time, the customer had the right to redeem the vehicle title. If the customer defaulted on the loan, the lender had the right to take possession of the vehicle and to sell it after the expiration of a grace period.

The customers claimed that they and the proposed class members were charged interest in excess of the statutory maximum set forth in the Tennessee Title Pledge Act or were charged fees that were not allowed by the TTPA.

Specifically, they claimed that the lender allegedly charged a prohibited “redemption premium fee” for redeeming the loan, calculated according to the date the loan was paid, which they said violated the TTPA because the redemption premium fee was not allowed.

They also alleged a violation of the Tennessee Consumer Protection Act, because the lender misrepresented to them that the redemption premium fee was lawful under the TTPA.

The customers asked the court for class certification, to rescind the title pledge loan agreements, and to award them punitive damages for the lender’s fraud.

The lender originally moved to compel arbitration, citing identical clauses in the title pledge agreements signed by each customer. The trial court granted the motion to compel arbitration and then granted the customer’s request to file an appeal.

The Court of Appeals ultimately reversed, holding that the arbitration clause was unconscionable and unenforceable because it reserved access to a judicial forum for the lender but restricted the customers to arbitration.

The lender then filed a motion to dismiss for failure to state a claim. It argued that the facts alleged by the customers, including the contents of the loan agreements that the customers attached, established that the lender did not violate the TTPA by charging prohibited fees or excessive interest.

Although the parties had not originally raised the issue, the trial court subsequently requested them to address the question of whether a private right of action existed under the TTPA. The trial court then dismissed the individual and classwide TTPA claims, ruling that the TTPA provided no private right of action.

The trial court also dismissed the class allegations under the TCPA in light of the Tennessee Supreme Court’s ruling that TCPA claims were inappropriate for class certification.

The trial court, however, didn’t dismiss the individual TCPA claims and it gave the customers permission to appeal the issue of whether the TTPA provided a private right of action. The Court of Appeals decided that the TTPA did create a private right of action in favor of pledgors for violations of the TTPA and reversed the trial court ruling.

State Supreme Court

The case was then appealed to the Tennessee Supreme Court, which agreed to hear the appeal to answer a single question: whether the TTPA permitted a private right of action on behalf of pledgors against title pledge lenders who allegedly charged excessive interest and prohibited fees.

The State Supreme Court noted that a motion to dismiss a complaint for failure to state a claim admits the truth of all of the relevant and material allegations contained in the complaint, but asserts that the allegations have failed to establish a cause of action.

Thus, noted the court, it would initiate a fresh review of the trial court’s legal conclusions, including the determination that the TTPA did not contain a private right of action.

The Supreme Court said that determining whether a statute creates a private right of action is a matter of statutory construction. A court’s essential duty in statutory construction is to determine and implement the legislature’s intent without limiting or expanding the statute’s coverage beyond what the legislature intended.

When the existence of a private right of action depends on the contents of the statute, the courts are not privileged to create such a right under the guise of liberal interpretation of the statute. The authority to create a private right of action under a statute is the province of the legislature.

To determine whether the legislature intended to create a private right of action for excessive interest and prohibited fees, the Supreme Court said it would begin with the specific statutory language.

Here, said the court, there was no dispute that the express language of the TTPA, at the time, did not create a right of action on behalf of a title pledgor against a title pledge lender, whether in the specific section prescribing the interest and fees that title pledge lenders may charge or elsewhere.

By contrast, noted the court, the legislature expressly granted a private right of action in the TCPA. Under that statute, “any person who suffers an ascertainable loss … as a result of the use or employment by another person of an unfair or deceptive act or practice declared to be unlawful by this part, may bring an action individually to recover actual damages.”

If a statute doesn’t expressly create a private right of action, a court’s next inquiry is whether the legislature otherwise indicated an intention to imply such a right in the statute.

In this case, the Supreme Court said it would look at the statutory structure and legislative history, including (1) whether the party bringing the cause of action was an intended beneficiary within the protection of the statute, (2) whether there was any indication of legislative intent, express or implied, to create or deny the private right of action, and (3) whether implying such a remedy would be consistent with the underlying purposes of the legislation. The burden in this case, ultimately would fall on the customers to establish that the statute created a private right of action.

Overview of Statutory Scheme

The TTPA was amended in 2005. The court said that the customers and the lender did not dispute that, in determining whether a private right of action existed when the customers filed their action, the court would look at the pre-2005 version of the TTPA and use it in its overview of the statutory scheme.

The General Assembly, said the court, originally enacted the TTPA in 1995, after a United States Bankruptcy Court decision holding that a title pledge loan did not satisfy the requirements of a “pawn transaction” under the Tennessee Pawnbrokers Act. According to the TTPA’s original statement of purpose:

The making of title pledge loans vitally affects the general economy of this state and the public interest and welfare of its citizens. It is the policy of this state and the purpose of this chapter to:

(1) Ensure a sound system of making title pledge loans through licensing of title pledge lenders;

(2) Provide for licensing requirements;

(3) Ensure financial responsibility to the public; and

(4) Assist local governments in the exercise of their police power.

These purposes are regulatory and penal in nature.

The TTPA legalizes loans by licensed title pledge lenders on pledges of personal property, certificates of title and pledges of titled personal property.

Among other provisions, the TTPA sets forth the eligibility requirements necessary to obtain a license and prescribes the contents of the petition for the license that the would be lender must submit.

Lenders must record all loan agreements they execute, making those records available for inspection and must record all liens on the certificate of title in a title pledge transaction.

The TTPA further caps the length of pledge agreements at 30 days, permitting renewals for 30 day periods in most circumstances; allows the lender to take possession of titled property if the pledgor defaults; and prescribes a 20 day holding period before the lender may sell the unredeemed property.

The customers claimed that Section 45 15 111(a) of the act was violated in this case. That section capped the interest that title pledge lenders could charge at 2 percent per month but allowed lenders to charge “a customary fee to defray the ordinary costs of operating a title pledge office.” That fee could not exceed one fifth of the original principal amount of the loan, or of the total unpaid balance due at the beginning of any renewal. The TTPA separately spelled out other prohibited actions by title pledge lenders.

At the time the customers filed their action, the TTPA provided for enforcement of its provisions entirely through criminal and administrative penalties. A knowing violation of the TTPA was a class A misdemeanor. Amendments in 1996 also provide that the license of a title pledge lender would be suspended for knowingly violating department rules that required the lender to issue a standardized notification and disclosure form before to executing a loan agreement. A repeated, persistent pattern of knowing violations of those rules would result in a longer suspension and potentially a revocation of the license.

Accordingly, said the court, before the department’s regulations under the 1996 amendments were added, the TTPA “contained no civil sanctions for a violation” of the statute, but was enforced entirely through criminal prosecution for knowing violations of its provisions.

The Supreme Court noted that where an act as a whole provides for governmental enforcement of its provisions, it would not casually engraft a means of enforcement of one of those provisions unless such legislative intent was manifestly clear. The court turned to the three factors relevant to deciding whether the legislature intended to imply a private right of action in the TTPA.

Plaintiffs as Intended Beneficiaries

The first factor is whether the party bringing the action was an intended beneficiary within the protection of the statute. Pledgors such as the customers were within the protection of the TTPA and stood to benefit from its provisions. The TTPA prohibits the title pledge lender from accepting any waiver of any right or protection accorded a pledgor under the statute.

The legislative history confirmed that pledgors were the intended beneficiaries of the TTPA. In particular, the sponsor of the 1995 Act explained that the cap on the interest and fees that lenders could charge incidental to the loan was intended to protect the pledgor consumer.

The mere fact that the legislature enacted the TTPA to protect and benefit pledgors, said the court, was not alone sufficient to imply a private right of action. The court said it must also consider the remaining two factors.

Legislative Intent

The second factor is whether there was any indication of legislative intent, express or implied, to create or deny a private right of action. The customers bore the burden of establishing the evidence of legislative intent to create such a right.

The Supreme Court said it had reviewed the TTPA’s entire legislative history and found nothing that would support the customers’ contention that the legislature intended to imply a private right of action in the TTPA.

According to the sponsor of the act, the cap on fees came about after district attorneys general had threatened prosecution of title pledge lenders for price gouging if the lenders did not “clean up their act.” Nothing in the sponsor’s comments suggested that, in addition to the criminal penalties for knowing violations of the TTPA, the legislature intended to allow private enforcement of the fee cap. Therefore, the customers could point to nothing in the legislative history that would make it “manifestly clear” that the legislature intended to engraft a private right of action onto the governmental means of enforcement that the TTPA provided.

The court noted that nonaction by a legislative body may become significant where proposals for legislative change have been repeatedly rejected. The title lender directed the court’s attention to at least eight bills introduced since the enactment of the 2005 amendments that would have expressly granted a private right of action to title pledge borrowers against title pledge lenders but that did not become law.

As a representative example, House Bill 1984, originally introduced in the 105th General Assembly on Feb. 15, 2007, would have added a new provision that began as follows:

“In addition to the administrative remedies provided in the preceding section, any title pledge borrower aggrieved by a violation of any of the provisions of this title by a title pledge lender shall be entitled to bring a civil lawsuit against such title pledge lender in a court of competent jurisdiction within two (2) years of the reasonable date discovery of such violation.”

Speaking before two committees, the drafter of the model legislation that became House Bill 1984 stated his understanding that the TTPA lacked an express right of action. He further offered the opinion that the TTPA was ambiguous about whether such right of action existed because the TTPA “doesn’t speak to that at all.”

Another bill that failed was introduced in the 106th General Assembly in 2009. It contained identical language on the express private right of action.

Therefore, the court noted that, after the enactment of the 2005 amendments, despite the legislature’s knowledge of the ambiguous silence in the existing statute, it repeatedly considered and ultimately refused to adopt a provision that would expressly create a private right of action under the TTPA and establish a two year statute of limitations for a title pledgor to bring a civil action against a title pledge lender for a TTPA violation.

The proposed language was similar to what the legislature included in the TCPA and other statutes. The court noted that such language had been available to the legislature even before it originally enacted the TTPA in 1995.

Despite being presumptively aware of the language that it has used to create express private rights of action in other statutes, the legislature did not include that language in the TTPA.

Ultimately, the Supreme Court said it concluded that the TTPA’s history did not indicate a legislative intent to create a private right of action for excessive interest and prohibited fees. The court turned next to the third factor.

Underlying Purposes

The final factor, said the Supreme Court, was whether an implied right of action would be consistent with the purposes of the statute.

The TTPA was enacted to establish a “sound system of making title pledge loans through licensing of title pledge lenders,” which included the creation of “licensing requirements.” Although the TTPA sought to “ensure financial responsibility to the public,” it achieved that financial responsibility, at that time, by assisting local governments in the exercise of their police power.

In addition to criminal penalties, a knowing violation of rules concerning the issuance of standardized forms before a lender executed a pledge agreement would result in the suspension and potentially the revocation of the lender’s license.

In short, the TTPA was designed to regulate the title pledge lending industry, especially through the licensure of lenders, and was governmentally enforced through criminal and administrative sanctions.

The courts in Tennessee have refused to imply a private right of action in regulatory statutes enforced through governmental remedies. The court said its philosophy of law reflected the United States Supreme Court’s maxim that it is an elemental canon of statutory construction that where a statute expressly provides a particular remedy or remedies, a court must be cautious of reading others into it.

The TTPA is a regulatory statute enforced through governmental remedies, said the court. Accordingly, the implication of a private right of action would be inconsistent with the TTPA’s purposes as set forth by the legislature.


Pawnbrokers who would like a free copy of this case sent electronically should send an E-mail to with “Private Right” in the subject line.

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