The Consumer Financial Protection Bureau has announced the procedures its examiners will use when identifying consumer harm and risks related to the Military Lending Act rule, which was last updated in July 2015. The exam procedures are intended to provide guidance to industry on what the Bureau will be looking for during reviews covering the amended regulation.
In 2006, Congress passed the Military Lending Act to address the issue of high-cost credit as a threat to military personnel and readiness. In July 2015, the Department of Defense issued a final rule expanding the types of credit products that are covered. The protections provided by the Military Lending Act extend to active-duty service members (including those on active Guard or active Reserve duty) and covered dependents.
When lending to servicemembers and their dependents, creditors must abide by the following requirements.
A 36 percent rate cap: Creditors cannot charge more than a 36 percent Military Annual Percentage Rate, a cap that generally includes the following costs (with some exceptions): finance charges, credit insurance premiums or fees, add-on products sold in connection with the credit extended, and other fees such as application or participation fees.
No mandatory waivers of consumer protection laws: Creditors cannot require servicemembers or their covered dependents to submit to mandatory arbitration or give up certain rights under state or federal law, such as the Servicemembers Civil Relief Act.
No mandatory allotments: Creditors cannot require servicemembers or their covered dependents to create a voluntary military allotment in order to qualify for a loan.
Early examinations will evaluate financial institutions’ compliance management systems and overall efforts to follow the rule’s requirements. Specifically, examiners will consider an institution’s implementation plan, including actions taken to update policies, procedures, and processes; its training of appropriate staff; and the handling of early implementation challenges.
For most forms of credit subject to the updated Military Lending Act rule, creditors are required to comply with the amended regulation as of Oct. 3, 2016; credit card providers must comply with the new rule as of Oct. 3, 2017.