A new interpretive rule issued by the Consumer Financial Protection Bureau (CFPB) stipulates its authority to examine supervised financial institutions for risk to active-duty service members and their dependents from conduct that violates the Military Lending Act.
CFPB acting director, Dave Uejio, said, “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.”
The MLA was enacted to protect military borrowers from predatory lenders and other creditors seeking to take advantage of military families. Predatory actions include:
1. Limiting the annual percentage rate on many loans to military borrowers to a maximum of 36%
2. 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
3. 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 service members with the ability to transmit funds directly from their military pay before their net pay goes to their designated bank account
4. Prohibiting lenders from charging military borrowers a penalty if they pay back part or all of a loan earlier than the agreed-upon schedule
“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,” Uejio added.
In 2018, the CFPB discontinued MLA examination activities based on the belief Congress did not confer examination authority on the CFPB in respect to MLA. However, the current CFPB leadership is not persuaded by this belief and will resume MLA-related examination activities.
For more information on the Military Lending Act and military consumer month, click the links provided.
