CFPB to resume Military Lending Act exams, reversing Trump-era policy

Dive Brief:

The Consumer Financial Protection Bureau (CFPB) issued an interpretive rule Wednesday, reasserting its authority to examine lenders for potential violations of the Military Lending Act (MLA).
The bureau began reviewing lenders’ records surrounding the MLA since 2013 but stopped conducting exams in 2018 under Trump-era Acting Director Mick Mulvaney, on the rationale that the law granted the CFPB enforcement authority but not supervisory authority.
Democratic lawmakers, service member groups and consumer advocates had argued that, in stepping back, the bureau was abdicating its duty to troops and their families.

Dive Insight:

Without exams, the CFPB has been relegated to using formal investigations to monitor MLA compliance — a system the bureau, in its rule Wednesday, said leads to "wasteful inefficiencies."

Nonetheless, the agency has flagged several companies for potential MLA violations over the past few months.

The CFPB sent MoneyLion civil investigative demands (CIDs) in 2019, 2020 and 2021 concerning its membership model and the company’s compliance with the MLA, the company said last week in a Securities and Exchange Commission (SEC) filing.

The bureau issued a CID to OppFi, stemming from a consumer complaint meant to determine whether the loan servicer's lending practices violated the MLA, the company said in March.

And the agency fined Nevada-based Omni Financial nearly $2.2 million in December over alleged MLA violations.

The MLA, passed in 2006, caps at 36% the interest rate lenders can charge military borrowers on consumer loans. Mulvaney had asked Congress to open the law for revision so the CFPB’s authority could be clarified. But advocates argued that would push lending groups to lobby for exemptions to the rate cap.

Dave Uejio, the CFPB’s current acting director, signaled in January that the bureau's official policy would be to supervise lenders for compliance with the MLA's protections.

"The bureau believes that it does have [that] requisite authority, and that the view that it originally took in 2013 was the correct one," the CFPB said Wednesday. The agency "does not find [the previous administration’s] beliefs persuasive and ... will now resume MLA-related examination activities."

At issue is the lack of specific language in the MLA regarding supervisory authority. The CFPB on Wednesday said that omission doesn’t preclude examinations so much as leave room for them.

A section of the 2010 Dodd-Frank Act gave the CFPB authority to conduct exams of banks, nonbanks and credit unions to detect "risks to consumers." Risks posed to service members or their dependents "fall squarely within that category" and are associated with conduct in other federal consumer protection laws, such as the Truth in Lending Act, which the CFPB is explicitly charged with enforcing, the bureau said Wednesday in its interpretive rule.