CFPB Report Finds Loopholes In Military Lending Act Rules Rack Up Costs For Servicemembers
CFPB Backs Department of Defense Proposal to Broaden the Rules for Greater Protections
WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) issued a report highlighting how loopholes in the current Military Lending Act rules are racking up costs for servicemembers. According to the report, these gaps have allowed companies to offer high-cost loans to military families by skirting the 36 percent rate cap and other military-specific credit protections. The Bureau included these findings in a comment filed in support of the Department of Defense’s proposal to broaden the scope of the Military Lending Act rules to cover deposit advance products, and more types of payday, auto title, and installment loans.
“The current rules under the Military Lending Act are akin to sending a soldier into battle with a flak jacket but no helmet. To give our troops full-cover protection, the rules need to be expanded,” said CFPB Director Richard Cordray. “The Department of Defense’s proposed revisions will go a long way toward better shielding our military from high-cost credit products.”
Today’s report can be found at:http://files.consumerfinance.gov/f/201412_cfpb_the-extension-of-high-cost-credit-to-servicemembers-and-their-families.pdf
In 2006, Congress passed the Military Lending Act to protect active-duty military personnel, active National Guard or Reserve personnel, and their dependents from predatory lending practices. In 2013, Congress amended the law by, among other things, giving the CFPB specific authority to enforce it.
The current rules under the Military Lending Act provide servicemembers and their dependents with specific protections for their consumer credit transactions. Among other safeguards, the rules cap the Military Annual Percentage Rate (MAPR) at 36 percent. The rate cap includes certain costs of credit like interest, application and participation fees, and charges for credit insurance and other add-on products. The rules also prohibit lenders from taking account access or a security interest in a vehicle title and they prohibit lenders from requiring servicemembers to submit to arbitration in the event of a dispute.
The current Military Lending Act rules only apply to three narrowly-defined consumer credit products: closed-end payday loans for no more than $2,000 and with terms of 91 days or fewer; closed-end auto title loans with terms of 181 days or fewer; and closed-end tax refund anticipation loans.
The Department of Defense recently proposed broadening the scope to generally include credit offered or extended to active-duty military members that has a finance charge or is payable under a written agreement in more than four installments. This would expand the rules to cover many more types of credit, including deposit advance products, and more types of payday, auto title, and installment loans. Specifically, under the Department of Defense proposal:
Snapshot of Costs of Current Military Lending Act Rules
In addition to the anecdotal information gathered by the CFPB, today’s report looked at deposit advance products over a 12-month period when those products were being offered. Deposit advances structured as open-end lines of credit fall outside of the protections of the Military Lending Act, as it is currently implemented. While those products are currently less available than when the information was gathered, this serves as a snapshot example of how the current Military Lending Act rules can impact servicemembers and their families. Today’s report noted that during the study period:
The CFPB is urging the Department of Defense to finalize this proposal. The CFPB’s comment letter can be found at:http://files.consumerfinance.gov/f/201412_cfpb_petraeus-comment-on-32-cfr-232.pdf
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 Military Lending Act 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 act.
The CFPB has a strong partnership with the Department of Defense to ensure appropriate protections for servicemembers and their families. In May 2012, the CFPB signed a Joint Statement of Principles with the Department on small-dollar lending.
More information about how the CFPB is protecting servicemembers is available at: www.consumerfinance.gov/servicemembers/
For the full text article, visit http://www.consumerfinance.gov/newsroom/cfpb-report-finds-loopholes-in-military-lending-act-rules-rack-up-costs-for-servicemembers/