In an effort to build support for the Department of Defense’s proposal to significantly expand Military Loan Act coverage, the CFPB has released a report entitled “The extension of high-cost credit to servicemembers and their families.” The DoD proposal would revise the scope of “consumer credit” subject to MLA restrictions to include, regardless of term or amount, all payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards.
The report was included as an Appendix to the CFPB’s comment letter endorsing the DoD proposal. The proposal is intended to implement MLA amendments made by the 2013 Defense Authorization Bill. The bill directed the DoD to consult with the CFPB regarding the MLA. In its comment letter, the CFPB states that in the process of consulting with the DoD, it “undertook an analysis of loans to servicemembers to determine if servicemembers were continuing to use high-cost credit products despite the protections of the MLA.”
The CFPB’s report consists of two parts, the first of which focuses on deposit advance products (DAP). To conduct its analysis, the CFPB identified a subset of accounts belonging to servicemembers that were part of the larger dataset used for the CFPB’s 2013 white paper on payday loans and DAPs. According to the CFPB, its findings “indicate that some depository institutions extended millions of dollars in deposit advances to servicemembers with APRs that typically exceeded 300 percent.”
The CFPB apparently believes that because servicemembers are using DAPs, such products need to be covered by the MLA. However, the CFPB notes in the report that given recent OCC and FDIC regulatory guidance regarding DAPs, “most banks that offered DAP at the time of our study are no longer offering these exact products.” Such OCC and FDIC guidance advised banks to include certain limitations in their underwriting policies for DAPs to provide greater protection for consumers. The CFPB fails to explain why such guidance does not adequately protect the interests of servicemembers.
The second part of the CFPB’s report uses information “heard” from the military community to provide examples of various “high-cost credit products” obtained by servicemembers that are not currently subject to the MLA. The CFPB’s press release describes such information as “anecdotal”–hardly the kind of evidence one would expect an agency that holds itself out as
data-driven to rely upon as a basis for regulatory change.
The DoD proposal has met with strong criticism from industry, which has urged the CFPB to take a more targeted approach in expanding MLA coverage.