The Consumer Financial Protection Bureau (CFPB) issued aninterpretive rule today that explains the basis for its authority to examine supervised financial institutions for risks to active duty servicemembers and their dependents (i.e. military borrowers) from conduct that violates the Military Lending Act (MLA).
“The Military Lending Act is an essential law protecting the finances of our military families and we are excited to announce this rule change prior to July, which is Military Consumer Month,” said CFPB Acting Director Dave Uejio. “Through our enforcement of the MLA, companies that harmed military borrowers have been ordered to pay millions of dollars in redress and civil penalties. To fulfill its purpose and protect military borrowers we must supervise financial institutions and hold them accountable for endangering consumers.”
“This decision affirms the CFPB’s ongoing commitment to the financial protection of our servicemembers and their families,” said Jim Rice, Assistant Director for the CFPB’s Office of Servicemember Affairs.
Congress enacted the MLA to protect military borrowers from predatory lenders and other creditors who seek to take advantage of military families by:
- Limiting the annual percentage rate on many loans to military borrowers to a maximum of 36%;
- Prohibiting lenders from requiring military borrowers to arbitrate disputes;
- Prohibiting lenders from requiring military borrowers to waive their rights under any state or federal law;
- Prohibiting lenders from requiring military borrowers to use a military allotment to repay a loan. An allotment is an automatic payment system managed by the Department of Defense that provides servicemembers with the ability to transmit funds directly from their military pay before their net pay goes to their designated bank account; and
- Prohibiting lenders from charging military borrowers a penalty if they pay back part or all of a loan earlier than the agreed-upon schedule.
In September 2013, the CFPB amended its supervisory procedures so that examiners could review lenders’ records regarding MLA violations. From that time until 2018, no companies disputed the CFPB’s authority to review their MLA lending practices.
In 2018, the CFPB’s leadership discontinued MLA-related examination activities, based on its stated belief that Congress did not specifically confer examination authority on the CFPB with respect to the MLA. The current CFPB leadership does not find those prior beliefs persuasive and the CFPB will now resume MLA-related examination activities.