Based on testimony to a Senate Committee last week by Holly Petraeus, CFPB Assistant Director with the Office of Servicemember Affairs, it looks very likely that an expansion of Military Loan Act coverage will be among proposed changes to MLA regulations that the Department of Defense is expected to issue soon. The DOD, in consultation with the CFPB, FTC and federal banking regulators, is currently working on proposed regulations to implement recent MLA amendments signed into law by President Obama this past January. In his appearance before the Senate Banking Committee earlier this month, Director Cordray indicated that the drafting team was “close” to issuing a proposal.
MLA regulations impose a 36% rate cap on, and prohibit the use of certain terms in connection with, extensions of “consumer credit,” which as currently defined, only includes tax refund loans and certain closed-end payday and auto title loans made to active duty armed forces members and their dependents. Mrs. Petraeus told the Committee that “[t]he increasing concern now is that lenders have easily found ways to get outside of the definitions” in the current MLA regulations. In particular, she referred to title loans with terms longer than 181 days, high-cost installment loans with terms greater than 91 days or in amounts greater than $2,000, and loans structured as open-end credit.
Mrs. Petraeus testified that “[t]he original rule was effective for those products that it covered, but over the past 6 years we have seen significant changes in the type of products offered and the contours of state law, and I think it’s critically important to ensure that the MLA protections keep up. I believe that any approach that has strict definitions that define individual products will fall victim to the same evasive tactics that are plaguing the current rule. And I know this is a shared concern with the Department [of Defense].” She also rejected suggestions “that DOD should fall back on financial education or command influence to deal with these issues.” Industry trade groups have expressed strong opposition to expanding the scope of the “consumer credit” definition.
Mrs. Petraeus was a member of a panel of witnesses at a hearing held by the Senate Committee on Commerce, Science and Transportation titled “Soldiers as Consumers: Predatory and Unfair Business Practices Harming the Military Community.” Other panel members included representatives from the FTC and the New York Attorney General’s office.
Military lending was also the subject of a New York Times article last week titled “Service Members Left Vulnerable to Payday Loans.” The article discussed various types of loans obtained by service members that currently are not covered by the MLA and reported that “[t]here is a growing momentum in Washington to act.”
The recent MLA amendments gave the CFPB new authority to enforce the MLA, and as reflected by Mrs. Petraeus’ testimony, protecting military servicemembers and their families continues to be a major CFPB focus. On December 12, 2013, from 12:00 PM – 1:00 PM ET, Ballard lawyers will be conducting a webinar, “Understanding the CFPB’s Defense Strategy on Military Lending.” Our webinar presenters will discuss recent developments pertaining to the MLA and the Servicemembers Civil Relief Act and the effects of these laws on the financial services industry. More information and a link to register is available here.