CFPB asks Congress for authority to sniff out predatory military lenders

Previous director piqued Democrats when he said the bureau doesn’t yet have legal standing to audit firms

Kathy Kraninger, the director of the Consumer Financial Protection Bureau, submitted a legislative proposal to “clarify” the bureau’s authority to supervise compliance with a military lending law. (Alex Wong/Getty Images file photo)

The leader of the Consumer Financial Protection Bureau is asking Congress to give the agency explicit authority to examine financial services companies for compliance with a law that caps how much a creditor can charge military servicemembers for loans.

In letters sent Thursday to Vice President Mike Pence and House Speaker Nancy Pelosi, CFPB Director Kathy Kraninger submitted a legislative proposal to “clarify” the bureau’s authority to supervise compliance with a military lending law designed to protect servicemembers from certain lending practices that may be considered predatory.

Kraninger’s move follows the decision last year by her predecessor, Mick Mulvaney, to stop routine Military Lending Act compliance examinations. As acting CFPB director, Mulvaney had determined that the 2010 Dodd-Frank financial regulatory law, which established the CFPB, didn’t give the bureau the legal authority to audit financial firms for compliance with the Military Lending Act. His decision to stop the examinations was criticized by congressional Democrats, along with some military associations and veterans groups.

Mulvaney, who left the CFPB when Kraninger was confirmed in December and is now acting White House chief of staff, said Congress needed to pass new legislation to give the bureau specific authority to conduct the examinations.

“The Bureau is committed to the financial well-being of America’s service members,” Kraninger said in a statement. “This commitment includes ensuring that lenders subject to our jurisdiction comply with the Military Lending Act so our service members and their families are provided with the protections of that law.”

She said she was “pleased” to see legislation proposed recently in the House that is intended to grant the CFPB the examination authority. “My hope is that bipartisan legislation advances as quickly as possible in the 116th Congress,” Kraninger said.

Republican Rep. Andy Barr of Kentucky introduced the measure on Jan. 10. It would amend the Dodd-Frank law “to extend the supervisory authority of the Bureau of Consumer Financial Protection to include assessing compliance with the Military Lending Act.”

Kraninger’s draft legislative proposal uses similar language, but uses the terms “to clarify” the bureau’s authority rather than “to extend” the CFPB’s authority.

The Military Lending Act was enacted in 2006 and implemented by the Defense Department. It seeks to protect active-duty members of the military, their spouses and their dependents from certain lending practices.

“These practices could pose risks for servicemembers and their families, and could pose a threat to military readiness and affect servicemember retention,” an official summary of the statute and its implementing regulations reads. The law limits the amount a creditor may charge, including interest, fees and charges imposed for credit insurance, debt cancellation and suspension, “and other credit-related ancillary products sold in connection with the transaction.” The total charge may not exceed 36 percent.

The law also prohibits loan terms, such as prepayment penalties, mandatory arbitration clauses and “unreasonable” notice requirements.

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