Payday/High-cost Loans

New Report: CFPB Allows Predatory Lenders to Target the Nation’s Military Personnel

CFPB Fails to Protect Those Who Protect America

Washington, D.C. A report released today by the Consumer Federation of America confirms the statutory authority of the Consumer Financial Protection Bureau (CFPB) to ensure Military Lending Act (MLA) compliance. The CFPB, under Acting Director Mick Mulvaney, has announced plans to end supervisory examinations for violations of the MLA, which was designed to protect military service members and their families from predatory lending. “It is completely unacceptable for the Trump Administration to abandon those who have sacrificed in defense of our country,” said Chris Peterson, CFA’s Director of Financial Services and author of the report.

Passed by Congress in 2006, the Military Lending Act addressed the predatory lending that was affecting both the morale and financial stability of the nation’s military personnel and thereby impacting the nation’s overall military readiness. The MLA caps interest rates on loans made to service members and their families at 36% and prohibits the extension of payday loans, vehicle title loans, and other types of harmful credit products to military personnel. To protect military personnel, since 2012, the CFPB has conducted supervisory examinations of large banks, payday lenders, and other financial companies to ensure compliance with the MLA.

Tragically, the CFPB is now claiming that it does not have the statutory authority to ensure MLA compliance through these preventative supervisory audits. The legal analysis released today by CFA’s Peterson, a former CFPB attorney, shows this claim to be categorically false. The analysis shows that the CFPB has supervisory authority under its enabling statute, the Consumer Financial Protection Act (CFPA), as well as the MLA itself, for the following reasons:

  • Violations of the MLA render service members’ loans void, thereby triggering concurrent violations of federal consumer financial laws under CFPB’s supervisory jurisdiction.
  • Federal law directs the CFPB to “obtain information” about “compliance systems or procedures” of large banks and payday lenders covered by the MLA.
  • Under the CFPA, the CFPB can cover MLA violations within its exams for the purpose of “detecting and assessing risks” to consumers.
  • The MLA requires the CFPB to enforce the MLA the same way that the CFPB enforces the Truth in Lending Act and expressly directs the CFPB to use “any other applicable authorities available” to protect our men and women in uniform.

Previously Unreleased Correspondence from CFPB Official

The report includes correspondence from a senior CFPB official demonstrating that under the Trump Administration, the CFPB’s political leadership overruled the recommendations and legal advice of CFPB’s professional staff. Included as an appendix to the report is a letter from the former CFPB Assistant Director for Servicemember Affairs and Retired U.S. Army JAG Corps Colonel Paul Kantwill. Kantwill’s letter to a CFA research team asserts that, contrary to the Trump Administration’s view, the CFPB does have the legal authority to include MLA issues within its supervisory exams. Further correspondence included in the report shows that the CFPB’s political leadership neglected to consult or notify the Department of Defense that Bureau examiners would no longer take critical preventative steps to protect military personnel from predatory lending.

“This flawed process produced a substantive policy change regarding servicemember rights that is at odds with nearly a dozen different passages in federal law that give the CFPB authority to include MLA issues within supervisory exams,” said Peterson. In doing so, the Bureau’s political leadership has weakened protection of military families over the objections of its qualified career professional staff and without coordinating its changes through the Federal Financial Institutions Examination Council.

The report makes clear that in providing oversight guidance, Congress did not forbid the CFPB from including the MLA within preventative audits. “For some inexplicable reason, the Trump Administration is directing the CFPB to overlook illegal, usurious lending to our troops within supervisory exams,” said Peterson. “America’s military families deserve the protection from predatory lending offered by the Military Lending Act—not to be abandoned by the CFPB.”

Contact: Christopher L. Peterson, 202-387-6121 x1020