On June 16, the CFPB issued an interpretive rule reversing its prior determination that it lacked authority to examine institutions for compliance with the Military Lending Act (MLA). In 2018, the CFPB discontinued checking for MLA compliance during supervisory examinations on the grounds that Congress had not authorized such examination authority under the Dodd-Frank Act. As a result, the new interpretive rule sets forth the statutory basis to examine institutions that it supervises for MLA compliance as follows:
- The Consumer Financial Protection Act (CFPA) authorizes the CFPB to conduct examinations of supervised nonbanks, very large banks, and credit unions for purposes of detecting and assessing “risks to consumers.” Risks of harm to servicemembers and their dependents from conduct that violates the MLA fall squarely within that category.
- The activity of extending “consumer credit” under the MLA is a subset of the activity of extending “consumer credit” under the Truth in Lending Act (TILA) and violations of the MLA can overlap with TILA violations.
- The MLA authorizes the CFPB to use formal administrative adjudications, civil enforcement actions, and other authorities to enforce the MLA, which is “complemented by the Bureau’s use of the examination process to detect and assess risks to consumers arising from violations of the MLA.”
Putting it Into Practice: The CFPB plans to resume MLA-related examinations after three years of no activities. A renewed focus means that lenders ought to review their policies and procedures related to servicemembers covered by the MLA, including many activities that the CFPB has flagged as predatory:
- Limiting the annual percentage rate on many loans to military borrowers to a maximum of 36%;
- Ensuring delivery of mandatory disclosures in addition to those required by TILA;
- 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; 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.