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CFPB Updates Exam Procedures for Military Lending Act Rules

October 3 – Consumer Financial Protection Bureau has updated exam procedures that its examiners will use in identifying consumer harm and risks related to the Military Lending Act rule. These exam procedures provide guidance to industry on what the CFPB will be looking for during reviews covering the amended regulation.

In July 2015, the Department of Defense issued a final rule expanding the types of credit products that are covered under the protections of the Military Lending Act. The protections extend to active-duty service members (including those on active Guard or active Reserve duty) and covered dependents.

Creditors must abide by the following requirements:

— Cannot charge service members or their covered dependents more than a 36 percent Military Annual Percentage Rate, which generally includes the following costs (with some exceptions): finance charges, credit insurance premiums or fees, add-on products sold in connection with the credit extended, and other fees such as application or participation fees.

— Cannot require service members or their covered dependents to submit to mandatory arbitration or give up certain rights under state or federal law, such as the Servicemembers Civil Relief Act.

— Cannot require servicemembers or their covered dependents to create a voluntary military allotment in order to qualify for a loan.

Early examinations will evaluate financial institutions’ compliance management systems and overall efforts to follow the rule’s requirements. Specifically, examiners will consider an institution’s implementation plan, including actions taken to update policies, procedures, and processes; its training of appropriate staff; and its handling of early implementation challenges. The bureau also expects institutions to ensure service members and other eligible consumers are receiving the consumer protections afforded by the Military Lending Act.

For most forms of credit subject to the updated Military Lending Act rule, creditors were required to comply with the amended regulation as of Monday (Oct. 3); credit card providers must comply as of Oct. 3, 2017.

The revised Military Lending Act exam procedures are based on the approved Federal Financial Institutions Examination Council procedures. They are available at http://files.consumerfinance.gov/f/documents/092016_cfpb_MLAExamManualUpdate.pdf.

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