By Benming Zhang, Consumer Finance, Credit Union

CFPB Reasserts Its Authority To Oversee/Supervise Lending to Military Personnel

The Consumer Financial Protection Bureau (CFPB) issued an interpretive rule on June 16, 2021 supporting its determination that it has the statutory authority to examine lenders for Military Lending Act (MLA) compliance. The MLA is a 2006 federal statute that places restrictions on certain lenders and loan practices aimed at protecting active duty military members, including imposing a 36% cap on interest rates for consumer loans.

The latest interpretive rule effectively restores the CFPB’s original policy of incorporating MLA compliance checks under its supervisory role. In 2018, the CFPB reversed its original policy by stating that it did not have the specific supervisory authority to conduct MLA-related examinations. The recent interpretive rule explains that the CFPB has such authority through the Dodd-Frank Act.

The CFPB brought two enforcement actions against lenders for MLA violations in recent years. At the beginning of this year, CFPB filed a proposed settlement with LendUp Loans, LLC for $300,000 in redress to consumers and $950,000 in civil penalties. LendUp Loans, LLC’s alleged MLA violations included over 4,000 single payment or installment loans to over 1,200 covered borrowers, loans exceeding the 36% cap, extending loans requiring borrowers to submit to arbitration and failing to make the required loan disclosures. Last year, CFPB issued a consent order against Omni Financial of Nevada, Inc. for $2.175 million in civil penalties and injunctive relief for ongoing and future violations. CFPB cited Omni for requiring repayment of loans by allotment, which is prohibited by the MLA because the United States Department of Defense runs the allotment system for servicemembers.

Effective immediately, the CFPB will conduct MLA-related exams through its supervisory exam procedures.

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