CFPB issues interpretive rule on authority to resume MLA exams

June 16, 2021

The Consumer Financial Protection Bureau (CFPB) issued an interpretive rule Wednesday that explains the basis for its authority to examine supervised financial institutions for compliance with the Military Lending Act (MLA). 

This CFPB position reverses the agency’s previous position in 2018 that it did not have examination authority regarding the MLA. Based on this announcement, the CFPB will resume MLA-related examination activities for the financial institutions under its authority, such as credit unions with over $10 billion in assets.

 Congress enacted the MLA to protect military borrowers from predatory lenders and other creditors who seek to take advantage of military families by:

  • Limiting the annual percentage rate on many loans to military borrowers to a maximum of 36%;
  • Prohibiting lenders from requiring military borrowers to arbitrate disputes;
  • Prohibiting lenders from requiring military borrowers to waive their rights under any state or federal law;
  • Prohibiting lenders from requiring military borrowers to use a military allotment to repay a loan.  An allotment is an automatic payment system managed by the Department of Defense that provides servicemembers with the ability to transmit funds directly from their military pay before their net pay goes to their designated bank account; and
  • Prohibiting lenders from charging military borrowers a penalty if they pay back part or all of a loan earlier than the agreed-upon schedule.