CFPB's Kraninger asks for 'clear authority' over military lending exams

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The director of the Consumer Financial Protection Bureau on Thursday asked Congress to give it the "clear authority" to conduct supervisory exams of banks and financial firms for compliance with the Military Lending Act.

The director, Kathy Kraninger, sent a letter to Vice President Mike Pence and House Speaker Nancy Pelosi with draft legislation that would give the bureau “nonexclusive authority to require reports and conduct examinations on a periodic basis.”

“The requested authority would complement the work the Bureau currently does to enforce the MLA,” Kraninger said in the one-page letter.

Last year, Mick Mulvaney, at the time the acting director of the CFPB, claimed that further legislation was needed for the CFPB to examine financial firms for MLA compliance.

The Obama administration had conduced supervisory exams for years, and has long cited its authority not just under the Dodd-Frank Act, but also in regulating “unfair, deceptive or abusive acts or practices,” known as UDAAP.

Mulvaney, now the White House chief of staff, had argued Dodd-Frank did not specifically identify the MLA among the 19 statutes under the CFPB's authority.

Still, the Department of Defense and roughly 30 military and veterans groups opposed Mulvaney's rollback of supervisory exams, citing bipartisan support for limits on military lending.

Defense officials said they were not consulted on the bureau’s decision, as required by law, and remained committed to the MLA, which imposes a 36% annual percentage interest rate cap for active-duty military members and their dependents.

The bureau has always had enforcement authority over a range of lenders, including payday and installment lenders, but without supervisory authority, investigations can take longer and often are based on consumer complaints.

Congress passed the MLA in 2006, subjecting payday, auto title and tax refund anticipation loans to the 36% cap. It was broadened in 2015 to include credit cards, installment loans and overdraft lines of credit.

Military groups have said they fear predatory lenders are trying to reopen the MLA to roll back the interest rate cap so they can go back to aggressively marketing products to the military.

Kraninger said the CFPB is committed "to the financial well-being of America’s service members."

"This commitment includes ensuring that lenders subject to our jurisdiction comply with the Military Lending Act so our service members and their families are provided with the protections of that law," she said.

Some lawyers said Kraninger was simply correcting the record so supervisory exams could continue.

“To argue they don’t have the authority borders on the nonsensical because the CFPB has extraordinarily broad UDAAP authority,” said Joe Lynyak, a partner at Dorsey & Whitney. “If you assume the CFPB has the right to examine payday lenders, then you come to the fact that a big portion of their business involves military folks and potential violations of the Military Lending Act.”

Regardless of the CFPB's actions, banks have maintained their compliance, lawyers said.

"Given the reputational harm and the liability associated with MLA violations, lenders are unlikely to reduce compliance based on whether the Bureau will be checking,” said Ben Olson, a partner at Buckley Sandler. “No lender wants to be accused of harming service members or their families."

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