Six banking industry trade groups, including the American Bankers Association, the Consumer Bankers Association and the Financial Services Roundtable, have sent a comment letter responding to a Department of Defense (DOD) advanced notice of proposed rulemaking (ANPR) on changes to the coverage of the DOD’s Military Loan Act (MLA) regulations. The MLA, as implemented by the DOD regulations, imposes a 36% rate cap on “consumer credit,” which as currently defined, only includes tax refund loans and certain closed-end payday and auto title loans made to active duty armed forces members and their dependents, and prohibits certain terms in such loans. In their letter, the trade groups express their opposition to expanding the scope of the “consumer credit” definition in the DOD regulations.
On January 3, 2013, President Obama signed the 2013 Defense Authorization Bill which amended the MLA to give enforcement authority to federal regulators that tracks their Truth in Lending Act enforcement authority. This means that the CFPB now has primary MLA enforcement authority as to large banks and shares enforcement authority with the FTC as to non-bank lenders. The CFPB is heavily focused on military affairs and already examines banks and non-banks for compliance with the Servicemembers Civil Relief Act.
The Senate version of the Defense Authorization Bill would have amended the MLA to require the DOD to expand the definition of “consumer credit” in its MLA regulations to cover payday and title loans, regardless of their duration or whether they are open- or closed-end. While that provision was not part of the final bill, the bill’s conference report recommended that the DOD conduct a study on whether the definition needs to be changed to protect servicemembers from predatory practices.
In a comment letter responding to the ANPR, 13 state attorneys general urge the DOD to modify its MLA regulations to cover (1) any payday or auto title loan “regardless of the loan’s amount, structure or duration,” and (2) “the full range of consumer credit loans that present dangers similar to those already covered, including rent-to-own transactions and overdraft loans.”
In their comment letter, the banking industry trade groups assert that in adopting the current MLA regulations, the DOD “struck the proper balance between protecting servicemembers and their families while still ensuring that they had access to beneficial products and services offered by depository institutions which are carefully regulated and regularly examined.” For example, with regard to MLA coverage of open-end payday loans, the trade groups note that because the definition of “consumer credit” triggers a series of restrictions, a focused definition is necessary to avoid limiting the access of servicemembers to open-end products such as home equity loans and credit cards. The trade groups assert that rather than added restrictions, what is needed is “strengthening financial education for servicemembers.” Their letter includes an appendix that addresses the key findings made in a 2012 MLA study conducted by the Consumer Federation of America and challenges the CFA’s recommendation that the MLA be expanded in several areas.