Bureau to resume exams under Military Lending Act

(June 18, 2021) Military Lending Act-related examinations will now resume by the CFPB, the agency said this week, asserting that the prior administration’s reasoning for discontinuing the reviews were not found persuasive.

In a release, the bureau said it has issued an interpretive rule explaining the basis for its authority to examine supervised financial institutions for risks to active duty servicemembers and dependents from conduct that violates the MLA. (The MLA, enacted in 2006, and implemented by the Department of Defense, applies to consumer credit offered to military service members and their dependents by, among other things, limiting the interest rates that may be charged on many types of consumer loans to no more than 36%.)

CFPB Acting Director Dave Uejio, in a statement, said through the bureau’s 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 said.

The agency noted in its release that in September 2013, it amended its supervisory procedures so examiners could review lenders’ records about MLA violations. Pointedly, the agency stated that for five years no companies disputed the bureau’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 bureau release stated. “The current CFPB leadership does not find those prior beliefs persuasive and the CFPB will now resume MLA-related examination activities,” the release concluded.

The summary for the interpretive rule (which becomes effective when it is published in the Federal Register) states outright that the bureau has “statutory authority to conduct examinations, at those institutions that it supervises, regarding the risks to active-duty servicemembers and their covered dependents that are presented by conduct that violates the Military Lending Act.”

“This interpretive rule explains the basis for that authority,” it states.

The CFPB’s interpretive rule also notes that the Consumer Financial Protection Act (CFPA) authorizes the bureau to conduct examinations of very large banks and credit unions for purposes of detecting and assessing “risks to consumers”that are associated with activities subject to federal consumer financial laws, such as the Truth in Lending Act (TILA) or the CFPA. The rule asserts that the activity of extending consumer credit under the MLA is a subset of the activity of extending consumer credit under TILA by the large credit unions and banks.

The bureau said it recognized the role of the prudential regulators in conducting MLA supervision, including examinations, at very large banks and credit unions. However, it also asserted that exams conducted by CFPB for MLA compliance are for a different purpose.

“Nothing in the CFPA or in this interpretive rule limits in any way, or should be deemed to limit in any way, the prudential regulators’ consumer compliance examinations of very large banks or credit unions, or their subsidiaries, for the purpose of assessing compliance with the MLA,” the rule states.

Consumer Financial Protection Bureau Issues Interpretive Rule on Authority to Resume Examinations Regarding the Military Lending Act