Reputation risk mitigation in the context of the resumption of MLA exams by the CFPB

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Auto lenders may need to verify their compliance with the Military Loans Act (MLA) to avoid reputational risks, fines, or additional penalties after the Consumer Financial Protection Bureau (CFPB) has announced that it will re-examine lenders’ files for AMLA violations.

Lenders should start with an internal audit to assess their level of compliance with the AML, Robert Savoie, member of McGlinchey who specializes in MLA, said Auto finance news.

“The LBA contains draconian penalty provisions and creates a unique reputational risk for financial institutions because [the statute] protects military personnel and their families, and this is not a group of people that lenders want to see violated the rights of, ”Savoie said.

A loan in violation of the AMLA must be canceled at the start of the transaction, providing no recourse to collect the loan or recover the asset. Additionally, lenders seen in breach of the MLA damage their organization’s reputation, Savoie said.

There are also concerns that the CFPB may change the MLA’s auto retail contract exemption for ancillary products or voluntary protection products, Savoie said.

Currently, installment transactions in the automotive industry are not subject to MLA guidelines, but litigation triggered by consumer complaints has brought the issue of auto exclusion back into the limelight. Uni Auto Credit, for example, was recently involved in a case in Virginia in which a plaintiff asked the court to reinterpret the auto exemption from the law on the basis that the loan included ancillary and voluntary protection products. The court is unlikely to rewrite the law to extend beyond what Congress intended, however, Savoie said.

“You are not changing the whole scope of the American [legal system] just because you… want the law to apply to something it doesn’t do, ”Savoie said. “It’s inappropriate, and it shouldn’t be the interpretation.”

The CFPB is also unlikely to push its authority beyond its perceived limits and risk losing its authority over the MLA entirely. If the CFPB pushes authority beyond perceived limits, Savoie expects to see immediate lawsuits from lenders against the Bureau for overstepping its AMLA review.

Congress enacted the MLA in 2006 to protect the military from predatory lenders who seek to take advantage of military families by:

  • Limit the annual percentage rate on many loans to military borrowers to a maximum of 36%;
  • Prohibit lenders from requiring military borrowers to arbitrate disputes;
  • Prohibit lenders from requiring military borrowers to waive their rights under any federal or state law;
  • Prohibit lenders from requiring military borrowers to use a military allowance to repay a loan. An award is an automatic payment system operated by the Department of Defense that provides the ability for military personnel to transfer funds directly from their military balance before their net balance is paid to their designated bank account; and
  • Prohibit lenders from imposing a penalty on military borrowers if they repay part or all of a loan earlier than the agreed schedule.

The CFPB started the review related to mutual legal assistance in 2013, but under the former director Kathleen kraninger halted its review of the law in 2018, finding that Congress had not specifically given the Bureau the power of MLA review. However, under the leadership of the Acting Director Dave uejio, the CFPB has resumed its review practices in the area of ​​mutual legal assistance.

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