On December 29, the Consumer Financial Protection Bureau issued a report calling for stricter and more extensive regulations to the Military Lending Act. The report, titled The Extension of High-Cost Credit to Servicemembers and Their Families, comes on the heels of a recent action by the CFPB, in which Virginia and North Carolina alleged that Freedom Stores, Inc., had engaged in illegal debt collection practices against servicemembers.
In 2006, Congress enacted the Act to protect military personnel and their dependents from predatory lending practices. The Act does so by (1) capping at 36 percent the rate that a creditor may charge in extending consumer credit to covered servicemembers and their dependents, including fees; and (2) creating a series of special consumer protections for covered members and dependents. The Department of Defense implements the Act. However, pursuant to a 2013 congressional amendment, the CFPB, among other agencies, has authority to enforce it.
The Department of Defense has proposed broadening the scope of the Act to cover a larger group of credit instruments, including deposit advance products, as well as more types of payday, auto title, and installment loans. As presently implemented, the Act does not cover open-end credit lines, auto title loans with initial terms in excess of 181 days, payday loans with initial terms in excess of 91 days, or payday loans with an initial balance of more than $2,000. Under the Department's proposal, supported by the CFPB:
- Open-end credit would be covered;
- Any length of payday loan or auto title loan would be covered; and
- Any amount of payday loan would be covered.
The CFPB included the findings in its report in a comment it filed on December 26.
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