On December 4, 2020, the Consumer Financial Protection Bureau announced the filing of a complaint against an online lender for alleged violation of the Military Lending Act (“MLA”). The CFPB complaint alleges that the lender entered into loan agreements with covered borrowers that exceeded the MLA’s 36% military annual percentage rate (“MAPR”) cap, contained provisions requiring borrowers to comply with arbitration in the event of a dispute, and did not provide all of the disclosures required by the deputy. The complaint seeks various forms of redress, including that the lender pay compensation for unjust enrichment, pay damages and other pecuniary measures to consumers, terminate consumer credit agreements that were ab initio (from the start), and definitively order the lender to collect the debts resulting from the nullity ab initio contracts, or sell or assign such claims.
While the allegations in the complaint are instructive, the CFPB’s indication that the December 4 complaint is only the beginning is perhaps even more significant. More specifically, the CFPB press release states: “[t]Today’s action is part of a larger series of Bureau investigations into several lenders that may be in breach of the AMLA. The massive operation flies in the face of 2018 statements by former CFPB director Mick Mulvaney that the CFPB would no longer review supervised entities for MLA compliance. The CFPB has yet to receive the regulatory clarity requested by Congress by Director Kathy Kraninger in 2019 regarding the scope of the CFPB’s authority with respect to the MLA. Despite its previously expressed position that the agency was unsure of the scope of its authority on mutual legal assistance, the CFPB chose to move forward with the identification and treatment of alleged violations of In addition, it seems that more of these types of actions will be coming soon.
CFPB’s announcement of its extensive MLA sweep means now is a good time to “clean up” your business’s MLA compliance. The main steps to follow include:
- Make sure you have a process to determine “covered borrower status”. The LBA applies to consumer credit transactions with “covered borrowers”. Accordingly, creditors must determine whether an applicant is a “covered borrower” (generally active service members and their dependents are “covered borrowers”). To achieve a safe harbor for covered borrower status determinations, creditors must directly or indirectly (possibly through a service provider) verify the applicant’s covered borrower status through the database. MLA data from the Ministry of Defense. Creditors can also verify a consumer’s covered borrower status using a consumption report obtained from a national consumer information agency that has a statement, code or indicator regarding the consumer’s status. Doing so, and keeping a record of the results, provides creditors with a safe haven.
- Observe the cap of 36% MAPR. The MLA imposes a MAPR cap of 36%. The MAPR is an all-inclusive APR which eliminates certain exceptions to financing charges under Regulation Z. For example, the calculation of the MAPR should include (a) fees / premiums charged for voluntary credit insurance, credit insurance contracts. debt cancellation and debt suspension agreements, and (b) any charges for ancillary products sold under consumer credit.
- Provide covered borrowers with the required information. The LBA also requires that covered borrowers receive specified oral and written disclosures.
- Adhere to the other specifically enumerated prohibitions on mutual legal assistance. The MLA prohibits, among other things, transactions secured by vehicle title, mandatory arbitration clauses, and contractual waivers of rights under any federal or state law, such as the Servicemembers Civil Relief Act. You must ensure that transactions with covered borrowers do not include any of these prohibited conditions.
With the harsh penalties associated with violating the AML and the CFPB’s newly announced attention to AML compliance, if you’ve put AMLA compliance on the back burner, now is the time to take another shot. eye.