Alert

September 30, 2016

CFPB Releases Updated Exam Procedures for Military Lending Act

The Consumer Financial Protection Bureau issued the procedures its examiners will use in identifying consumer harm and risks related to the Military Lending Act rule. For most forms of credit subject to the updated Military Lending Act rule, creditors are required to comply with the amended regulation as of October 3, 2016; credit card providers must comply with the new rule as of October 3, 2017.

In 2006, Congress passed the Military Lending Act to help address the problem of high-cost credit as a threat to military personnel and readiness. In July 2015, the Department of Defense issued a final rule expanding the types of credit products that are covered under the protections of the Military Lending Act. The protections provided by the Military Lending Act extend to active-duty servicemembers (including those on active Guard or active Reserve duty) and covered dependents. When lending to servicemembers and their dependents, creditors must abide by the following requirements:

• A 36 percent rate cap: Creditors cannot charge servicemembers or their covered dependents more than a 36 percent Military Annual Percentage Rate, which generally includes the following costs (with some exceptions): finance charges, credit insurance premiums or fees, add-on products sold in connection with the credit extended, and other fees such as application or participation fees.
• No mandatory waivers of consumer protection laws: Creditors cannot require servicemembers or their covered dependents to submit to mandatory arbitration or give up certain rights under state or federal law, such as the Servicemembers Civil Relief Act.
• No mandatory allotments: Creditors cannot require servicemembers or their covered dependents to create a voluntary military allotment in order to qualify for a loan.