Consumer group report disputes CFPB policy on military lending exams

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The Consumer Financial Protection Bureau has "ample legal authority" to examine firms for compliance with the Military Lending Act despite the agency's claims to the contrary, a consumer advocacy group said in a report Thursday.

The report by the Consumer Federation of America also said the Department of Defense was not notified before the bureau halted MLA exams.

Earlier this year, acting CFPB Director Mick Mulvaney said the agency did not have statutory authority under the Dodd-Frank Act to enforce the military lending law, in a major reversal from the Obama administration.

“The CFPB’s political leadership neglected to consult or notify the Department of Defense that Bureau examiners would no longer take critical preventative steps to protect military personnel from predatory lending,” the report stated.

The Military Lending Act, passed by Congress in 2006, caps interest rates at 36% for service members and their families and prohibits the extension of high-cost payday and vehicle title loans.

Last week, 33 state attorneys general joined the Defense Department and roughly 30 military and veterans groups in opposing the supervisory rollback.

The report listed several reasons why the CFPB has the legal authority to conduct such exams, which it had previously been carrying out since 2012. MLA violations not only render service members' loans void, but also trigger additional violations of federal consumer financial laws that the CFPB must cover within its exams, the report found.

The CFPB typically uses supervisory exams to get information about MLA compliance that is pertinent to business practices already subject to CFPB enforcement. The CFPB also has broad legal authority under the Dodd-Frank Act to detect and assess risks to consumers including unfair, deceptive or abusive acts or practices, the report said.

Because the MLA predates the existence of the CFPB, the law did not contemplate enforcement by or consultation with the bureau. Dodd-Frank also did not explicitly include the MLA among the 18 enumerated statutes that were transferred to the CFPB from other federal agencies.

However, Congress amended the MLA itself as part of the National Defense Authorization Act for fiscal 2013, giving the CFPB enforcement authority over the MLA and adding the bureau to the list of agencies the Defense Department must consult in exercising its rulemaking, the report found.

“This flawed process produced a substantive policy change regarding service member rights that is at odds with nearly a dozen different passages in federal law that give the CFPB authority to include MLA issues within supervisory exams,” said Chris Peterson, a senior fellow at the Consumer Federation of America and University of Utah law professor, who was a special adviser to former CFPB Director Richard Cordray.

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Compliance Enforcement Dodd-Frank Payday lending Mick Mulvaney DoD CFPB