Reversing Trump-era ruling, federal government strengthens enforcement of rules protecting troops from predatory lenders

In a major effort to protect the military from predatory lenders, the Consumer Financial Protection Bureau said on Wednesday it would resume its reviews of lenders to enforce the military loan law.

The announcement reverses a decision made by CFPB leaders in 2018 under the Trump administration to halt such reviews of lender files to monitor possible violations of the military loan law, citing the belief of CFPB leaders that ‘they did not have the power to do so under the law.

Among other things, the Military Loans Act limits the annual percentage rate on many loans to active-duty military personnel and their dependents to 36%, including application fees and certain other charges in the calculation. Typically, the APR of most loans would be below 36%, but loans with even higher interest rates – sometimes exceeding 300% – are still available in the civilian community from payday lenders, for example. .

Lenders should verify that the borrower is not covered by the military loan law before granting the high interest loan.

The law also prohibits lenders from forcing military borrowers to use a military allowance to repay a loan; and prohibits forced arbitration in loan disputes, which guarantees the right of military borrowers to take their cases to court.

While the Department of Defense has developed rules to implement the 2006 law, the DoD does not have the authority to enforce it with lenders. It depends on federal regulators of financial institutions, such as the CFPB and regulators of banks and credit unions. The CFPB is the only regulator that reviews the practices of non-bank institutions such as payday lenders, vehicle title lenders, installment lenders and some others.

In 2018, the CFPB halted its review of activities related to the Military Loans Act based on officials’ interpretation that Congress had not specifically given the CFPB the power to conduct such reviews. That changed with a rule of interpretation released on Wednesday. “The current CFPB leadership does not find these previous convictions convincing and the CFPB will now resume review activities related to MPs,” a CFPB announcement said on Wednesday.

“This decision confirms the CFPB’s continued commitment to the financial protection of our military personnel and their families,” said Jim Rice, deputy director of the CFPB’s Office of Military Affairs, in the announcement.

Consumer advocates applauded the CFPB’s decision. “This is fabulous news,” said Paul Kantwill, a retired army colonel who is founding executive director of the Rule of Law Institute at Loyola University Chicago School of Law, and former deputy director of military affairs. at CFPB.

“The resumption of oversight activities under the Military Loans Act sends a strong deterrent message to those who have benefited or may try to take advantage of our military personnel and their families. We can’t know exactly how much harm was done to military consumers during the break, but we now know that the sentries are back at their posts, looking for our troops, ”said Kantwill, who was also previously director of the legal policy of the DoD Undersecretary. of staff and preparation.

“The Military Loan Act is a vital law protecting the finances of our military families and we are delighted to announce this rule change before July, which is Military Consumer Month,” said CFPB Acting Director , Dave Uejio, in the ad. “Through our application of the MLA, companies that have harmed military borrowers have been ordered to pay millions of dollars in reparations and civil penalties.

“To fulfill its purpose and protect military borrowers, we must oversee financial institutions and hold them accountable for endangering consumers. “

As CFPB considered changing its policy in 2018, leaders of 38 organizations representing millions of current and former military personnel and their families sent letters to then-Secretary of Defense Jim Mattis and the acting director of the military. Consumer Financial Protection Bureau, Mick Mulvaney, urging continued military loan law enforcement.

“We urge you to stand with the troops and oppose any attempt to weaken the military loan law, including the Bureau’s supervisory and enforcement authority and [DoD’s] rules against predatory lending by all businesses, including by auto dealers, ”the advocates wrote. In addition, advocates mounted a $ 250,000 advertising campaign to urge strict and continued law enforcement.

At the time, advocates said, there were indications that the Military Loan Act had the desired effect of reducing the use of predatory lenders, citing the results of a DoD investigation that indicate a lower use of payday loans by service members.

The CFPB changed its oversight procedures in 2013 to allow examiners to review lender files for AML violations. From that date until 2018, no company contested the power of the CFPB to review its MLA lending practices, CFPB officials said.

In an interview with Military Times in 2019 about the ruling, then CFPB director Kathleen Kraninger said CFPB examiners always had the opportunity to highlight concerns or violations of the loan law. military personnel, while conducting reviews of compliance with other federal statutes.

“If the reviewers see anything related to MLA, they absolutely cite it and let the company know, and as long as it needs to be taken to the next level, we have full enforcement authority when it comes to MLA. “said Kraninger. .

“What we are looking for is a narrow and explicit authority to take exams especially on the MLA, to actively participate and do a concerted exam related to the MLA,” she said.