TX Loan Lawsuit Dismissed: PA Interest Rate Cap Upheld

Fifth Circuit Backs Pennsylvania in TitleMax Affiliate’s Usury Law Challenge

A federal appeals court has affirmed the dismissal of a lawsuit brought by an affiliate of TitleMax, a major title lending company, seeking to block Pennsylvania’s enforcement of it’s consumer lending interest rate cap.

A unanimous panel of judges from the Fifth Circuit Court of Appeals ruled that TMX Finance Corporate Services Inc.(TMX FCS) cannot challenge pennsylvania’s usury laws in a Texas federal court. the decision, reached on January 9, 2026, upholds a lower court’s application of the Younger abstention doctrine, which prevents federal courts from interfering with ongoing state proceedings.

The case stems from a 2017 investigation launched by the pennsylvania Department of banking and Securities into several entities affiliated with TitleMax. after years of investigation and the issuance of multiple subpoenas, the Department issued an order to show cause (OSC) against TitleMax, seeking over $52 million in sanctions for alleged violations of the state’s usury laws.TMX FCS, arguing it dose not directly engage in lending activity and was not specifically named in the allegations, afterward filed suit in the Northern District of Texas in August 2024, claiming the OSC violated the U.S. constitution.

Did you know? – the Younger abstention doctrine, central to this case, is a judicially created rule designed to balance federal and state court powers. It prevents federal courts from intervening in active state court proceedings.

Judge David godbey initially dismissed the case, citing Younger abstention. This legal principle is rooted in the concepts of federalism and comity, and aims to respect the authority of state courts. TMX FCS argued that the district court failed to properly assess whether the Pennsylvania proceeding qualified for abstention, contending that courts must first categorize state proceedings as criminal prosecutions, civil enforcement actions, or proceedings uniquely furthering state court functions.

However,the Fifth Circuit panel disagreed,stating it reviews judgments for legal correctness rather than a district court’s reasoning. The court resolute that the Pennsylvania OSC clearly qualified as a civil enforcement proceeding, satisfying the initial threshold for abstention.

the panel then applied the three-factor framework established in Younger v. Harris (1961), finding that abstention was appropriate. These factors include whether there is an ongoing state enforcement action, whether the state has a strong interest in enforcing its laws, and whether the plaintiff had an adequate possibility to raise constitutional challenges in state court. The court found all three factors were met in this case.

Pro tip – When a company challenges a state law, federal courts frequently enough defer to the state’s authority, especially when the state is actively enforcing its regulations. This is a key aspect of federalism.

“Pennsylvania has a strong interest in protecting its consumers from predatory lending practices,” the court stated in its opinion. Furthermore, the panel rejected TMX FCS’s arguments that the state case was no longer active, that the company only sought prospective relief, or that concerns regarding personal jurisdiction or the Dormant Commerce Clause warranted federal intervention.

The court emphasized that TMX FCS had the opportunity to present its constitutional objections within the Pennsylvania legal system.

Reader question – Do you think this ruling will encourage other states to pursue similar enforcement actions against lenders? What impact might this have on access to credit?

Why: TMX Finance Corporate Services Inc. (TMX FCS), an affiliate of TitleMax, filed a lawsuit in Texas federal court attempting to block Pennsylvania’s enforcement of its consumer lending interest rate cap.They argued the state’s order to show cause (OSC) violated the U.S. Constitution.
Who: The case involved TMX FCS (TitleMax affiliate) and the Pennsylvania Department of Banking and Securities.