Dykema Gossett PLLC
Dykema Gossett PLLC

Consumer Financial Protection Bureau Law Blog

CFPB Law Blog

News and analysisi of the priorities, initiatives and regulatory actions and proceedings of the Consumer Financial Protection Bureau

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Congress Extends The CFPB’s Regulatory Authority and Limits Interest Rates Payday Lenders Can Charge Military Servicemembers

On December 30, 2012, Congress presented President Obama with the National Defense Authorization Act for Fiscal Year 2013 (H.R. 4310). While the Act is predominately focused on aspects of military spending, it contains notable amendments to the Military Lending Act of 2007 (MLA) that will extend the CFPB’s existing regulatory authority and limit interest rates that payday lenders can charge servicemembers and their dependents. President Obama is expected to sign the Act.

The MLA currently provides protections to servicemembers and their dependents for short-terms loans, including limiting the interest rate to 36 percent per year on certain short-term loans.  The MLA, however, lacked enforcement mechanisms and contained loopholes allowing payday lenders to circumvent the interest rate cap by providing open-end lines of credit. Congress fixed those omissions by establishing more stringent enforcement mechanisms and closing the loopholes.

Most notably, the bill gives federal regulators the same enforcement authority provided for in the Truth in Lending Act (15 USC 1607).  As such, the CFPB will have exclusive authority to enforce the MLA against payday lenders and will have shared enforcement authority with the Federal Trade Commission (FTC) over non-bank lenders.  The addition of enforcement authority of the MLA expands the CFPB’s existing duties to educate servicemembers and monitor consumer financial products and services offered to servicemembers and their families through its Office of Service Member Affairs.  The bill also provides a mechanism for individuals to file suit in any federal court for violations of the MLA.  Civil penalties under such actions would provide for actual damages, but not less than $500 for each violation, as well as punitive damages. 

H.R. 4310 also closes the loophole that allowed certain lenders to circumvent the interest rate cap through open-end lines of credit by making the MLA applicable to “any consumer credit,” rather than just loans.  In addition, the bill revises the MLA’s definition of “dependent,” tracking the definition in 10 USC 1072 to qualify for medical and dental care, to provide protection to unremarried widows and widowers and certain unremarried former spouses of servicemembers.

With this new enforcement authority and the CFPB significant focus on protecting military servicemembers and their dependents, banks and non-banks covered by the MLA should take a close look at their practices to ensure compliance with the MLA.  Stay tuned to the CFPB-Lawblog as we continue to follow these and other changes to the CFPB’s authority and practices.