CFPB continues enforcement trends with consent order for Military Lending Act and EFTA violations

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On December 30, 2020, the CFPB announced a consent order with Omni Financial of Nevada, Inc. based on alleged violations of the Military Lending Act (MLA) and Electronic Funds Transfer Act (EFTA).  This is the second consent order announced as part of a sweep of investigations for potential MLA violations.

According to the CFPB, Omni as an installment lender making tens of thousands of loans annually, generally in smaller amounts, ranging from $500 to $10,000.  Over 90% of Omni’s loans are extended to servicemembers or their dependents who are protected by the MLA.  Less than 10% of Omni’s loans are extended to borrowers who are not protected by the MLA, such as civilians and military retirees.

The consent order alleges that Omni violated the MLA by illegally requiring covered servicemembers or their dependents to repay installment loans by allotment.  In fact, Omni employees allegedly told active-duty servicemembers protected by the MLA that they would have to agree to pay by allotment in order to get a loan.  More than 99% of such servicemembers who got loans agreed to do so.

As for borrowers not protected by the MLA, the consent order alleges that Omni violated the EFTA by conditioning their extensions of credit on their agreement to repay by preauthorized electronic fund transfers.  According to the consent order, Omni required all such consumers to provide bank account and routing information and to sign a contract that authorized Omni to initiate electronic fund transfers from those accounts in the event of a payment default.  The CFPB provided no data on defaults or on the frequency with which such transfers occurred, asserting that the contract terms called for repayment by preauthorized electronic fund transfers because such payments could theoretically occur at substantially regular intervals (the first business day after a missed payment and each successive payment thereafter until the borrower made a payment by another means).

The consent order requires Omni to pay a civil monetary penalty in the amount of $2,175,000. The consent order also prohibits Omni from requiring covered servicemembers or their dependents to repay loans by allotment or conditioning any loan on a borrower’s agreement to repay with a preauthorized electronic fund transfer.  Further, Omni is prohibited from including the rate or number of consumers who have elected to repay their loans by allotment as part of its employee performance evaluation criteria or otherwise incentivizing employees to obtain authorizations from consumers to repay loans by allotment.

While, as noted, this is the CFPB’s second recent investigatory sweep related to military lending practices, the Omni consent order may also be part of a broader but unannounced focus on EFTA compliance.  This is the fourth CFPB enforcement action seeking redress for alleged EFTA violations in the past six months.  (See our prior blog here.)  We would also note that between July and October 2020, the CFPB announced 25 new enforcement actions as part of another investigatory sweep concerning potential unlawful advertising in violation of Regulation N by mortgage companies offering mortgages guaranteed by the Department of Veterans Affairs.  (See our prior blogs here, here, here, and here.)  If the CFPB’s MLA sweep is similar, and if there is a broader focus on EFTA compliance, then we are likely to see a number of additional MLA and EFTA enforcement actions announced in early 2021.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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