CFPB to Restart Examinations Related to Military Lending

The Consumer Financial Protection Bureau yesterday issued an interpretive rule that reverses a policy decision put in place under the Bureau’s former leadership that will restart examinations in order to enforce the Military Lending Act.

The CFPB, under former Acting Director Mick Mulvaney announced in 2018 that it would not examine institutions for compliance with the MLA, saying that it was required to act only when complaints were submitted to the CFPB by servicemembers.

In the rule, which was released yesterday, the CFPB said it “is no longer persuaded by counterarguments that it does not have the relevant authority” to conduct examinations to ensure compliance with the MLA.

The Military Lending Act regulates certain lending practices when originating loans to active duty service members. Among the provisions is the establishment of a Military Annual Percentage Rate cap of 36% on most consumer loan products, a ban on prepayment penalties, and a prohibition against requiring mandatory arbitration in the event a service member wishes to take action against a financial services company. Lenders are also required to ensure individuals are not covered by the MLA before originating a loan.

Most recently, the CFPB filed suit in December against a lender accused of violating the MLA and said it was conducting a “broader Bureau sweep of investigations of multiple lenders” who might be violating the law.

Consumer advocates praised the announcement of the new guidance.

“The resumption of supervisory activity under the Military Lending Act sends a strong deterrent message to those who have, or might try to, take advantage of our service members and their families. We cannot know exactly what harm has come to military consumers during the hiatus, but we know now that the sentries are back at their posts, looking out for our troops,” said said Paul Kantwill, a retired Army colonel who is founding executive director at The Rule of Law Institute at Loyola University Chicago School of Law, and former assistant director for service member affairs at the CFPB, who was also previously director of legal policy for the DoD undersecretary of personnel and readiness, in a published report.

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