WASHINGTON, D.C. – Today, the U.S. Department of Defense issued a final rule expanding the types of credit products that are covered by the 36-percent rate cap and other military-specific protections under the Military Lending Act. The rule closes loopholes that have led to lenders skirting the law with products that fall outside the scope of the existing regulation.
Consumer Financial Protection Bureau Director Richard Cordray issued the following statement:
“I congratulate Secretary Carter and the Department of Defense on the final rule published today. The CFPB strongly supports the Department’s efforts to strengthen consumer protections for our nation’s military families. Today’s rule will help ensure that American servicemembers get the legal protections they deserve. As one of the agencies responsible for enforcing the Military Lending Act, we stand ready to stop illegal lending to military families.”
Holly Petraeus, Consumer Financial Protection Bureau Assistant Director, Office of Servicemember Affairs, issued the following statement:
“When I drive down the strip outside a military installation and count 20 fast-cash lenders in less than 4 miles, that’s not a convenience, that’s a problem. I commend Secretary Carter for taking this important step to make the Military Lending Act more effective.”
The Military Lending Act provides servicemembers and their dependents with specific protections for their “consumer credit” transactions. Among other protections, the law limits the annual rate on an extension of such credit to 36 percent, provides for military-specific disclosures, and prohibits creditors from requiring a servicemember to submit to arbitration in the event of a dispute. As initially implemented by the Department of Defense in 2007, the Military Lending Act protections applied to three narrowly-defined “consumer credit” products:
- closed-end payday loans for no more than $2,000 and with a term of 91 days or fewer;
- closed-end auto title loans with a term of 181 days or fewer; and
- closed-end tax refund anticipation loans.
The final rule announced today amends the definition of “consumer credit” covered by the regulation to more closely align with the broad, traditional definition of credit covered by the Truth in Lending Act. The rule generally covers consumer credit offered or extended to active-duty servicemembers or their dependents, as long as the credit is subject to a finance charge or payable by written agreement in more than four installments. In accordance with the statute, the MLA regulation would continue to exclude residential mortgages and credit extended to finance the purchase of, and secured by, personal property, such as vehicle purchase loans.
The Military Lending Act is implemented by the Department of Defense, and is enforced by the CFPB and other federal regulators. In September 2013, the CFPB released guidelines on how its examiners will identify consumer harm and risks related to MLA violations when supervising payday lenders. In November 2013, the Bureau took action against a payday lender, Cash America, for extending payday loans to servicemembers and their families in violation of the Military Lending Act. In December 2014, the Bureau issued a report highlighting how lenders had continued to exploit loopholes in the existing Military Lending Act rules.
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.