CFPB Releases Updated Exam Procedures for Military Lending Act

CFPB to Evaluate Military Lending Act Violations in its Exams of Creditors and Will Use Its Enforcement Authority in Cases of Substantial Consumer Harm

WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) issued the procedures its examiners will use in identifying consumer harm and risks related to the Military Lending Act rule which was updated in July 2015. The exam procedures being released today by the Bureau provide guidance to industry on what the CFPB will be looking for during reviews covering the amended regulation.

“Protecting servicemembers is a priority for the CFPB,” said CFPB Director Richard Cordray. “The updated exam procedures being released today will help ensure that servicemembers and their families are dealt with in a fair and safe manner when attempting to access credit.”

In 2006, Congress passed the Military Lending Act to help address the problem 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 under the protections of the Military Lending Act. The protections provided by the Military Lending Act extend to active-duty servicemembers (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 servicemembers or their covered dependents more than a 36 percent Military Annual Percentage Rate, which 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 its handling of early implementation challenges. The Bureau also expects institutions to ensure servicemembers and other eligible consumers are receiving the consumer protections afforded by the Military Lending Act. Risks to consumers resulting from Military Lending Act violations are significant, and the CFPB will exercise its enforcement authority in appropriate cases of substantial consumer harm.

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.

The revised Military Lending Act exam procedures released today are based on the approved Federal Financial Institutions Examination Council procedures. This interagency effort helps promote a consistent regulatory experience for industry.

Today’s revised Military Lending Act Exam Procedures can be found at: http://files.consumerfinance.gov/f/documents/092016_cfpb_MLAExamManualUpdate.pdf  

A copy of the Department of Defense’s Military Lending Act rule can be found here: https://www.gpo.gov/fdsys/pkg/FR-2015-07-22/pdf/2015-17480.pdf

Information for consumers about the Military Lending Act is available here on AskCFPB: http://www.consumerfinance.gov/askcfpb/

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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.