MARCH FORWARD!: CFPB Resumes Litigation of Alleged MLA Violations
This is not a drill! After many questions about how the new administration would ultimately deal with the CFPB and considering the abrupt halt of its ongoing litigation around the country, it appears we are witnessing signs of the agency's continuation. Well, at least we see a re-emergence of agency enforcement actions on the judicial front (see this CFPB letter resuming the MoneyLion lawsuit).
In early March of this year, the CFPB advised a U.S. District Court in Texas that it would proceed against FirstCash, Inc. and Cash America West, Inc. (collectively the "defendants") for alleged Military Lending Act violations.
The original lawsuit filed in November of 2021, describes in detail why the agency ultimately sued the pawn brokers in court. Allegedly, the defendants extended consumer short-term pawn loans to covered servicemembers and imposed APRs "frequently exceeding 200%" on consumer credit. For reference, the statutory maximum APR under the MLA is 36%.
As an aside, this lawsuit is not the first "warning shot" the defendants had to stop any military lending infractions. "The 2013 Order prohibited Cash America and its successors 'from any further violations of 10 U.S.C. § 987 [the MLA], as implemented by regulations of the Department of Defense.' The 2013 Order remains in effect today." In 2016, the defendants merged and have operated as a combined company and are both subject to the Bureau's 2013 Order.
The lawsuit lists four counts or violations of the MLA which should be familiar to all servicemember lending experts. The lawsuit alleges that since October 3,2016, the creditor:
- Exceeded the MLA's Rate Cap- defendants made over 3,600 pawn loans to more than 1,000 covered borrowers, which loans imposed an MAPR greater than 36%.
- Required Covered Borrowers to Submit to Arbitration- defendants made over 3,600 pawn loans to more than 1,000 covered borrowers by way of loan contracts that mandated borrowers submit to arbitration to resolve disputes despite the MLA's prohibition on such clauses.
- Failed to Make Disclosures to Covered Borrowers- defendants made over 3,600 pawn loans to more than 1,000 covered borrowers without making all loan disclosures, including the applicable MAPR statement, required by the MLA.
- Violated the Bureau's 2013 Prohibition Order- "FirstCash has, together with CAW [the defendants], made over 3,600 pawn loans to more than 1,000 covered borrowers in violation of 10 U.S.C. § 987 and its implementing regulation, 32 C.F.R. Part 232," while the 2013 Order was in effect, and thereby violating federal consumer financial law.
The CFPB seeks injunctive relief and damages for affected consumers, amongst other things. By reasserting this lawsuit, the agency appears to be making a clear message that military lending continues to be a top priority for the new administration.
Credit Unions
Credit unions, which extend consumer credit to active duty servicemembers, should ensure their policies address the "drill commands" triggered by these agency actions to crack down on military lending violations. To prudently avoid servicemember litigation, credit union staff should "fall in" compliance with federal military lending laws; "present, arms" of required disclosures to affected members; and always "stand fast" to MLA policies.
These resources may help credit unions stay in formation:
- Military Lending Act (MLA) | Consumer Financial Protection Bureau
- What is covered under the Military Lending Act? | Consumer Financial Protection Bureau
- Back 2 Basics: MLA Compliance | America's Credit Unions
If you have any questions about this blog, please contact the compliance team using our email address: compliance@americascreditunions.org.
