CFPB backs off of military lenders

The Consumer Financial Protection Bureau plans to alter the way it manages enforcement of financial products for military personnel, focusing on complaints received rather than preemptive exams.

According to a report in the New York Times, the Consumer Financial Protection Bureau plans to alter the way it manages enforcement of financial products for military personnel.

CFPB Interim Director Mick Mulvaney has announced that the bureau will no longer conduct what are known as “supervisory examinations” of institutions. Though some claim that Mulvaney is abandoning the bureau’s duties to enforce the law, Mulvaney claims that the law itself does not permit the kind inquiry that the bureau has previously used.

The law in question is the Military Lending Act. It was designed to protect military service members and their families from financial fraud, predatory loans and credit card gouging. Over the last decade, studies have found that military members, their families and veterans are four times as likely to be targeted by dishonest lenders. Indeed, since its inception, the CFPB has returned more than $130 million to service members, veterans and their families.

Under former CFPB Director Richard Cordray, the bureau took an aggressive approach to enforcing the MLA. Military lenders were routinely investigated proactively by the bureau, looking for evidence of wrongdoing. No complaint or whistleblowing was required. The Times report quotes unnamed former bureau officials saying that these investigations were a powerful tool, noting that it was such investigations that led to several of its largest fines.

Mulvaney does not deny the efficacy of supervisory examinations. Rather, he questions their legality. Though the MLA sets caps on interest rates and empowers the bureau to punish transgressors, it makes no explicit mention of a power to conduct preemptive examinations and then force entities to turn over documents for evidence.

Mulvaney said that he wants that power, but the MLA does not give it to him. A Mulvaney spokesman said the rule change came from a top-to-bottom review of the bureau’s procedures geared at curtailing what the Trump administration and others have criticized as overly aggressive enforcement. The proper way forward, he said, is for Congress to quickly pass legislation that would explicitly grant the power to conduct supervisory examinations. Mulvaney noted that the agency’s goal was “to protect service members, but we also have to abide by the law.”

Until Congress acts, the CFPB will continue to act on complaints funneled through its website, hotlines, the military and people who believe they have been victims of abuse. The bureau will still fine those who overcharge under the MLA and will enforce other consumer laws against military lenders.

Fredrikson & Byron Law