While most of the federal government remained shuttered in mid-January, the Consumer Financial Protection Bureau (CFPB or the Bureau) was on the job, thinking about the Military Lending Act (MLA or the Act). On January 17, 2019, the Bureau’s Director, Kathleen Kraninger, issued a statement asking Congress to “explicitly grant the Bureau authority to conduct examinations specifically intended to review compliance with the MLA.” Director Kraninger’s predecessor, Mick Mulvaney, reportedly halted MLA-related examinations last year, citing the lack of statutory authority . It appears from the Director’s request that the CFPB may not conduct MLA compliance examinations without new legislation.
The MLA—enacted in 2006 and implemented by the Department of Defense—provides enhanced protection to active duty service members, their spouses, and their dependents when they obtain certain types of loan products. One of the main protections prevents creditors from imposing more than a 36% Military Annual Percentage Rate (an annualized rate including interest and other fees) on a covered individual for certain products. The Act also prohibits certain loan terms, such as mandatory arbitration clauses or prepayment penalties.
Congress granted the Bureau enforcement authority for the MLA’s requirements in 2013. At the time, the Bureau interpreted the scope of that new authority to include supervision—the authority to proactively examine covered institutions for violations of the Act. In its Supervisory Highlights for Winter 2013, the Bureau stated that it would ensure adherence to the MLA through both enforcement and supervision activity, and noted that it had updated its short-term, small-dollar loan examination procedures with guidance on how to identify MLA violations. The Bureau then issued a set of standalone examination procedures for MLA compliance in 2016. The Bureau has taken one enforcement action based on MLA violations—a consent order issued in 2013.
The Bureau has not issued any formal guidance regarding MLA-related supervisory activity since 2016. However, in August 2018, it was widely reported that then-Acting Director Mulvaney planned to suspend MLA-related examinations. The basis for the suspension was reportedly that, although the MLA legislation granted the Bureau enforcement authority, the Act did not grant supervisory authority. In other words, the Bureau planned to continue to exercise its enforcement authority as violations of the MLA came to its attention, but CFPB examiners would not proactively monitor covered institutions for violations.
Subsequent to those reports, Democratic members of the House Committee on Financial Services (HCFS)—including current HCFS Chair Maxine Waters—sent a letter to Director Kraninger requesting that she commit to resuming MLA-related supervisory activity. The Director responded by issuing the above-mentioned request for legislation explicitly granting the Bureau supervisory authority over the MLA. Based on the wording of Director Kraninger’s request, it appears that the Bureau may not conduct “examinations specifically intended to review compliance with the MLA” until it receives explicit legislative authority from Congress.
In conjunction with her request, Director Kraninger submitted to lawmakers proposed legislation that would grant the Bureau supervisory authority for the MLA’s requirements. A week prior to the Director’s request, Representative Andy Barr introduced House Resolution 442, which would also grant the requested authority. The prospects for either proposal are unclear in a divided Congress.