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.