by Maura Dundon, Senior Policy Counsel, Center for Responsible Lending
Military consumers
get a federal private right of action
Recent amendments to the Military Lending Act (aka the
Talent Amendment to the National Defense Authorization Act) provide a rare, new
private right of action for military consumers—but the effectiveness of the
potentially broad-sweeping Act still remains largely in the hands of the
Department of Defense.
First passed in 2006, the Military Lending Act provided significant
consumer protections for service members, but failed to include strong private
or federal administrative enforcement mechanisms. The recent MLA amendments greatly strengthen
enforcement through a private right of action and new financial agency jurisdiction. The private right of action includes a full
menu of remedies—actual, statutory and punitive damages; equitable relief; and
attorneys’ fees. It includes a limited
bona fide error defense that expressly excludes legal errors, similar to other
federal consumer laws. On the administrative
side, the Consumer Financial Protection Bureau, the Federal Trade
Commission, and the banking agencies can now enforce MLA violations under their
Truth in Lending Act authority.
Although enforcement authority now lies with a full roster
of federal agencies, the DoD, which issued MLA rules in 2007, is still in
charge of MLA rulemaking. The MLA’s key
substantive provisions remain mostly unchanged after the recent
amendments: interest rates for “consumer
credit” capped at 36%, and arbitration clauses prohibited. Despite this broad
language, the DoD rule implementing the MLA back in 2007 gave a limited definition
of “consumer credit”, covering only tax refund anticipation loans, payday
loans, and car title loans. The rule also
gave lenders the opportunity to evade regulation by making technical changes to
take them out of the product definitionsdefinitions—for example, by lengthening the term of a payday
loan.
The MLA amendments don’t directly fix the DoD
rules. Instead, the conference report directs
the DoD to undertake a study of predatory lending and the effectiveness of the
MLA regulations and report back to the Armed Services Committees. We’re hopeful that DoD will take steps to
broaden the rule and continue cracking down on predatory lenders.
The amendments are sections 661-663 of the National Defense
Authorization Act and will be codified at 10 U.S.C. § 987. You can find them here.
