In light of Veterans Day, there are some recent notable developments regarding the Military Lending Act (MLA) worth discussing. Enacted in 2006, the MLA caps the annual interest rate for an extension of consumer credit to a servicemember and/or their dependents at thirty six percent, among other protections. The MLA initially applied to a narrow range of payday, auto title, and tax refund anticipation loans, but was expanded in 2015 to include credit cards, installment loans and overdraft lines of credit.
The Consumer Financial Protection Bureau (CFPB) recently announced it plans to end supervisory examinations for alleged violations of the MLA. Supervisory examinations are one of the agency’s key tools to ensure that supervised entities comply with federal consumer financial laws and allow the agency to proactively uncover abuses and patterns of illegal practices by companies suspected of wrongdoing.
According to the CFPB’s Acting Director Mick Mulvaney, neither the Dodd-Frank Act nor the MLA contain explicit provisions for it to conduct supervisory examinations related to alleged violations of the MLA. Under the Obama Administration, the agency conducted dozens of investigations into payday and other lenders pursuant to the MLA without any significant legal opposition or challenges.
According to Mulvaney, the CFPB plans to ask Congress to provide it with express authorization to conduct active monitoring of lenders’ MLA compliance. With the Democrats achieving a majority in the House, Congress may very well introduce legislative changes in January 2019. However, until these changes are enacted, the CFPB plans to halt its use of supervisory examinations to investigate alleged MLA violations.
In response to this announcement, a coalition of thirty-three, bi-partisan state attorneys general sent a letter the CFPB, asking it to reverse course. The coalition argued that MLA permits the CFPB to conduct supervisory examinations and implored the agency to continue strong enforcement of the MLA. Consumer groups and groups representing servicemembers and their families also strongly oppose the CFPB’s change in position.
For financial institutions, the CFPB’s change in supervisory policy will mean reduced oversight through routine supervisory examinations based solely on the MLA. While the CFPB will continue to pursue cases against creditors for violations of the thirty-six percent interest rate cap and other MLA prohibitions, it will rely solely on complaints from servicemembers, rather than its own examinations to uncover violations.
A year ago, the CFPB reported that it had handled over 91,000 complaints from servicemembers, veterans, and their families since 2011. Its 50-state snapshot showed servicemembers are less likely to submit complaints than non-servicemembers about mortgages and credit reporting.