In an effort “to protect soldiers and their families from abusive financial practices,” all 49 Democrats on the U.S. Senate, signatories to a letter delivered to Consumer Financial Protection Bureau interim director Mick Mulvaney, are urging him and other Trump administration officials “not to abandon their duty to protect our servicemembers and their families under the Military Lending Act.”
The letter responds to news reports that the CFPB is considering no longer enforcing the MLA as part of lender examinations due to a purported lack of legislative authority. The initiative was led by Jack Reed, a Rhode Island Democrat who is ranking member of the Armed Services Committee.
In 2006, Congress passed the MLA 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 MLA extend to active-duty service members (including those on active Guard or active Reserve duty) and covered dependents.
When lending to service members 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 service members 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 service members or their covered dependents to create a voluntary military allotment in order to qualify for a loan.
“These reports are puzzling because the CFPB already possesses the authority to enforce the MLA and examine many types of lenders for the purposes of ‘detecting and assessing risks to consumers and to markets for consumer financial products and services,’” the letter to Mulvaney says. “The CFPB should not be abandoning its duty to protect our servicemembers and their families, and we seek your commitment that you will utilize all of the authorities available to the CFPB to ensure that servicemembers and their families continue to receive all of their MLA protections.”
“For generations, Americans have set partisanship aside and have made every effort to provide servicemembers and their families with all the resources and protections they deserve,” the senators added. “We ask no less of you and, as such, seek your commitment that you will continue the CFPB’s tradition of ensuring that servicemembers and their families receive all of their MLA protections by utilizing all of the authorities available to the CFPB.”
Senate Democrats, led by Reed, created the Office of Servicemember Affairs at the CFPB to serve as an independent watchdog for military personnel. It focuses on consumer financial challenges affecting service members and their families. It empowers service members through financial education and works with CFPB examiners to ensure that consumer protections are made available to service members, while also monitoring complaints submitted by consumers to the Bureau and coordinating with other federal and state agencies on military consumer protection measures. The office has handled more than 90,000 consumer complaints from service members and their families.
The letter stressed that CFPB examinations and the Office of Servicemember Affairs have been “critical components of ensuring the detection and prevention of risks to military consumers.”
“Such examinations serve as the early warning system for MLA deficiencies so that they do not snowball into costly losses for servicemembers and avoidable litigation costs and penalties for lenders,” they wrote.
The senators stressed that “needlessly stopping MLA examinations altogether and choosing instead to rely on reports of MLA violations after they occurred is further perplexing given that the CFPB is already conducting lender examinations of credit products that are also subject to the MLA.”
“Such a policy decision would be both inefficient and irresponsible to require a CFPB examiner to ignore as part of his or her examination risks to military consumers who are protected by the MLA,” they added. “In addition, for our service members, especially those who are deployed overseas facing hostile fire, it is unreasonable to place the burden of detecting and reporting MLA abuses on servicemembers, especially when they should be given every opportunity to focus squarely on their missions.”
The senators requested that Mulvaney respond to them regarding his plans for future MLA examinations by Aug. 20.