Bureau fires first shot in resuming exams under Military Lending Act; asserts that 2018 reasoning for discontinuing ‘not persuasive’

Military Lending Act-related examinations will now resume by the federal consumer financial protection agency, it said Wednesday, asserting that the prior administration’s reasoning for discontinuing the reviews were not found persuasive.

In a release, the Consumer Financial Protection Bureau (CFPB) 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 Military Lending Act (MLA). (The MLA, enacted in 2006 and implemented by the Department of Defense, applies to consumer credit offered to military servicemembers and their dependents by, among other things, limiting the annual percentage 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 that 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 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 rule offers three explanations for CFPB authority to resume exams that are opposed to the previous administration’s contentions:

  • The argument that the bureau has no authority over the MLA because it is not federal consumer financial law “relies on assumptions about Congress’s intentions that are not expressed anywhere in the statutory text or any legislative history.”
  • The Supreme Court has rejected the previous administration’s argument that conferral of certain enforcement authorities implies an unstated exclusion of supervisory authority. “The Court has recognized that where financial regulators have formal enforcement powers regarding a specific subject but also ‘broad statutory authority to supervise financial institutions,’ there is nothing that prevents ‘the regulators from invoking less formal means of supervision of financial institutions,’ given that there is ‘no prohibition against the use of supervisory mechanisms not specifically set forth in statute or regulation.’”
  • Not exercising the bureau’s authority to identify “risks to consumers” for active-duty servicemembers and their families would be a “slippery slope towards making the authority that Congress expressly conferred on the bureau, to seek out ‘risks to consumers,’ a dead letter.” The bureau stated it believes that harmful conduct Congress sought to prevent in the MLA, which the bureau has the authority to remedy through its other authorities (specifically enforcement action), “sits within the core” of its authority.

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