A broad and bipartisan coalition of 33 state attorneys general (AGs) recently sent a letter to the Consumer Financial Protection Bureau regarding the Military Lending Act (MLA). While the letter's main purpose is to dissuade the Bureau from eliminating its own supervisory exams into MLA compliance, the letter also provides important insight into states' enforcement priorities.
As background, Venable has previously covered how the federal Consumer Financial Protection Act (CFPA) expressly gives state AGs and regulatory bodies broad authority to sue under the CFPA's 18 federal enumerated consumer laws (e.g., ECOA, FDCPA, FCRA, TILA, etc.) and the prohibition against unfair, deceptive, and abusive acts or practices (UDAAP). The MLA, which caps the Military Annual Percentage Rate (MAPR) at 36%, is not on the list of enumerated consumer laws. See 32 CFR § 232.4(b); 12 U.S.C. § 5481(12).
This might seem to suggest that states have no power to enforce compliance with the MLA. But the AGs' letter indicates there may be other ways that states will try to pursue what amounts to MLA enforcement. In particular, the AGs' letter asserts that "originating illegal loans to Servicemembers constitutes an 'unfair, deceptive, or abusive act or practice'" under the CFPA. Furthermore, the letter warns that if the Bureau stops examining MLA compliance, that will lead to "regulation-by-enforcement" and "reactive enforcement when Servicemembers submit complaints."
These statements highlight how states may assert that loans to servicemembers exceeding the MLA's 36% MAPR cap are "illegal" and therefore violate the CFPA's UDAAP prohibition, which states may enforce. This approach is analogous to the Bureau's assertion that loans, which are usurious under state law, therefore violate the CFPA's UDAAP prohibition. See, e.g., CFPB v. CashCall, Inc., 2016 WL 4820635, at *10 (Aug. 31, 2016). Thus, even while the Bureau has asked Congress to amend the CFPA to explicitly permit Bureau supervision under the MLA, the AGs' letter highlights how states may take enforcement action to accomplish the MLA's aims anyhow.