In another action demonstrating that a “new CFPB” is in place under the Biden Administration, the CFPB has issued an interpretive rule setting forth the basis for its determination that it has authority to examine institutions that it supervises for Military Loan Act (MLA) compliance.

In 2018, under the leadership of former Acting Director Mulvaney, the CFPB stopped examining its supervised institutions for MLA compliance on the ground that it did not have the requisite statutory authority.  Dave Uejio, soon after becoming the current Acting Director in January 2021, publicly shared a statement sent to CFPB staff in which he criticized prior CFPB leadership’s approach to the MLA and indicated that the CFPB planned to resume supervisory examinations for MLA compliance.

Mr. Uejio’s views are reflected in the CFPB’s press release announcing the change in position on the CFPB’s MLA authority.  It states that “current CFPB leadership does not find [CFPB leadership’s] prior beliefs [as to the CFPB’s MLA authority] persuasive and the CFPB will now resume MLA-related examination activities.”  (In 2019, the CFPB sent a proposal to Congress that would have amended the Consumer Financial Protection Act (CFPA) to give the CFPB express statutory authority to examine supervised nonbanks and very large banks and credit unions for MLA compliance.)

The Bureau’s analysis in the interpretive rule of its MLA authority includes the following key arguments:

  • The Consumer Financial Protection Act (CFPA) authorizes the Bureau to examine supervised nonbanks “for the purpose of assessing and detecting ‘risks to consumers.’”  The risks to servicemembers and their dependents from conduct that violates the MLA falls squarely within that category.  Risks of harm to consumers that the Bureau can address through its enforcement authority are logically “risks to consumers” that the Bureau can detect and assess.  If “risks to consumers” do not include those risks that can lead to a Bureau enforcement action for civil money penalties, restitution, disgorgement, and other relief, it is unclear what remaining meaning the category would have.
  • The CFPA authorizes the Bureau to examine very large banks and credit unions “for the purpose of assessing and detecting those ‘risks to consumers’ that are ‘associated’ with ‘activities subject to’ Federal consumer financial laws, such as the TILA or CFPA.”  The activity of extending “consumer credit” under the MLA is a subset of the activity of extending “consumer credit” under TILA and violations of the MLA can overlap with TILA violations as well as violations of the CFPA’s UDAAP prohibition.  Because conduct that violates the MLA is associated with activities subject to TILA and the CFPA, the CFPA standard is satisfied.
  • By incorporating TILA’s enforcement scheme, the MLA authorizes the Bureau to use administrative adjudications, civil enforcement actions, and other authorities to enforce the MLA.  That enforcement scheme is complemented by the Bureau’s use of examinations to detect and assess risks to consumers arising from MLA violations.  This reading avoids an unworkable gap in Bureau examinations that can otherwise only be filled by the formal enforcement process.  Based on the Bureau’s experience, that gap leads to wasteful inefficiencies for both the Bureau and supervised institutions.  When the Bureau is already examining a nonbank or very large bank or credit union for potential TILA violations that are intertwined with potential MLA violations, it is inefficient for both the Bureau and supervised institution if the Bureau relies exclusively on its CFPA enforcement tools to identify and address MLA violations, closing off any use of the Bureau’s supervisory process to detect and address these risks to consumers.  As an example of such inefficiency, verifying TILA disclosures would be the work of a Bureau examiner but reviewing the related MLA disclosures in the same document would be reserved to a Bureau enforcement attorney who would normally obtain copies of such disclosures through a CID.

In the interpretive rule, the CFPB also sets forth the arguments that had persuaded the Bureau under its prior leadership that it lacked the authority to examine for MLA compliance and provides the reasons why the Bureau “no longer finds these arguments persuasive.”