In a response to a recent decision to stop examining lenders who provide loans to military service members, Colorado Attorney General Cynthia Coffman and 32 other attorneys general around the country are calling out the Consumer Financial Protection Bureau and its acting director, Mick Mulvaney, to leave current protective measures in place under the Military Lending Act. The act protects service members from predatory lenders who offer debt-mounting loans at extremely high interest rates.
In the Oct. 23 letter to Mulvaney, attorneys general from 33 states, including Colorado, expressed their concern with the CFPB’s decision to stop ensuring lenders follow the MLA rules.
“The Consumer Financial Protection Bureau ensures that lenders are complying with the Military Lending Act as a part of its regular, statutorily mandated supervisory examinations,” Coffman said. “No longer ensuring this compliance could significantly harm the service members who live and work in Colorado and that would be contrary to the CFPB’s statutory mandate.”
In August, the New York Times reported that Mulvaney wanted to get rid of routine supervisory examinations of creditors for MLA violations because “the CFPB lacks statutory authority to examine creditors for MLA compliance … and that such proactive oversight is not explicitly laid out in the legislation.”
The attorneys general argue that the “protection of our nation’s service members against financial exploitation is a bedrock tenet of federal consumer financial protection law, and it traditionally has been a bipartisan effort.”
Since World War I, federal law has sought “to protect those who have been obliged to drop their own affairs to take up the burdens of the nation” by providing special protections, the attorneys general said, citing the 1943 case Boone v. Lightner. In 2006, the protections under this law were extended and signed by President George W. Bush. Although the lending industry, which includes payday loan companies, has been lobbying to loosen this enforcement for several yers, trying to exempt certain fees from the 36 percent rate cap, the CFPB will continue to examine cases against lenders who have are found to charge in excess of the annual interest rate cap mandated under the law. However, even with continued rate cap enforcement, the attorneys general still think military families will remain vulnerable to financial hardship.
“Approximately 60 percent of military families report experiencing stress related to their financial circumstances. Without proper protections in place, businesses that interact with the military community in Colorado, and at-large, may engage in unfair, deceptive or abusive lending practices without detection,” Coffman said, adding that suspending routine examination of lenders for violations of the MLA may also “reduce incentive to comply with the act, and consequently could leave service members and their families vulnerable to fraud and predatory practices.”
“My concern is the impact it will have on Colorado service members and their families. The letter illustrates strong bipartisan support in continuing to work with our federal partners to enforce the very laws designed to prevent financial exploitation of our states’ service members, and I hope it will resonate with the CFPB,” Coffman said.
Since the MLA was enacted 12 years ago, the CFPB has been keeping a watchful eye on lending companies that provide loans to service members and ensuring they follow the MLA rules, call out risks to consumers and protect borrowers from being offered illegal or exploitative loans, she said.
“It’s so easy to target young Marines [and other service members] with these loans because they’re young and are not very good at handling money and finances,” said Staff Sergeant Kristina Alkine, a former Marine recruiter from Arvada. “It’s no surprise that young [service members], especially those who are in the enlisted ranks and who are paid very little, often fall prey to lenders offering them large amount of money. “Go to any town that sits outside a military base and you’ll see rows and rows of those quick cash, payday loan businesses, strategically placed around the base. Do you think that’s a coincidence?”
Alkine, like many targeted service members, has racked up significant amounts of debt by borrowing from predatory lenders that offer poorly qualified applicants high-interest loans, sometimes illegally. The problem with these types of debt-building loans directly affects the military, Alkine said.
In some cases, service members are compelled to leave the military to find higher paying jobs in the civilian sector so they can chip away at their mounting debt obtained from such high-interest loans.
According to the Defense Department, a regulation finalized in 2015 that strengthened the MLA was “expected to decrease the number of involuntary separations of service members due to financial hardship by between 5 and 30 percent, saving the military between $14 million and $133 million each year.” But the CFPB’s decision to stop examining lenders puts service members at risk, attorneys general say.
Coffman said she hopes Mulvaney and the CFPB will reconsider their reported decision to discontinue reviewing lenders’ compliance with the MLA as part of their examinations.
“Our service members and their families sacrifice so much for our country, and it is the very least we can do to try our best to protect them on the homefront,” she said.
— Sarah Green