A defense spending package recently signed into law by President Barack Obama includes enhanced protections for service members who use payday loans and other higher-cost credit products. The amendments to the Military Lending Act (MLA) empower the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) to enforce a 36-percent rate cap on the annual percentage rate of certain types of loans to the active-duty military.
The changes to the MLA were included in HR 4310, the National Defense Authorization Act for FY 2013, which was approved by the Senate on Dec. 21, 2012.
According to a release from the Consumer Federation of America, the changes:
- Empower the CFPB and FTC to enforce the MLA: Previously, the CFPB had authority to supervise payday lenders but did not have authority to cite violations of the MLA when examining these lenders;
- Empower the FTC to enforce the MLA: Previously, the FTC managed the Military Sentinel repository for complaints filed by service members, but did not have authority to take action when those complaints identified violations of the MLA.
- Require the Department of Defense (DOD) to review the effectiveness of existing Military Lending Act rules every two years, in consultation with financial regulators: When the bureau was established, the requirement that the CFPB be consulted on MLA rule writing was not transferred. The amendment adds the CFPB to the list of financial regulators to be consulted;
- Require the DOD to conduct a study of credit products and practices and identify new credit products that negatively impact service members: The study, to be developed in consultation with consumer protection advocacy groups and the financial services industry, must be delivered to the Committees on Armed Services of the U.S House and Senate within one year.
- Ensure that service members are protected by existing state credit laws: Consumer advocates said some lenders have evaded state credit laws by claiming that they only originate loans to non-resident service members stationed at bases around the country. This provision will ensure that lenders follow the state credit laws of the state where the service member receives the loan, the federation said.
- Protect dependents of service members from abusive credit products and practices: The MLA applies financial protections to both the service member and his or her dependents. The amendments standardize the definition of covered military dependents to make it easier for creditors to identify who is covered; and
- Provide for civil liability in U.S. district court for violations of consumer protections for service members and dependents.
“These amendments are a positive step forward and will ensure that financial protections for service members, including the 36 percent rate cap, are adequately enforced,” said Jean Ann Fox, senior advisor for financial services at the Consumer Federation of America. “We look forward to working with the Department of Defense as it reviews and regulates credit options available to service members to ensure that the financial protections envisioned by Congress are fairly and evenly applied.”