January 2015 A Regulatory & Legislative Advisory for Compliance Professionals
Inside . . .
2 Safe Accounts for
2 Report: Many
Borrowers Don't Shop
3 More Oversight of
3 No-Action Letter
4 Super-Priority Lien
4 Continued Push for
FCC Action on Phone
4 Lender Discretion
Sought on Insuring
5 FDIC FAQs on
5 Draft State Model
Regs on Virtual
Bank Secrecy Act
6 $1 Million CMP
ABA, GROUPS: PENTAGON PROPOSAL WOULD CONSTRICT
CREDIT TO SERVICEMEMBERS
The Defense Department’s proposed restrictions on credit for service members goes
too far, ABA said on December 18. Not only would the proposed rule constrict
mainstream credit options for members of the military and their families, it would
create technological and compliance hurdles that would impede lending across the
country, regardless of the borrower’s military status.
In a comment letter signed by a coalition of groups representing banks and credit
unions, ABA noted that DoD offered no evidence for covering mainstream products
such as credit cards, student loans and installment loans under the Military Lending
Act, which was intended to target tax refund anticipation loans, payday loans, car title
loans and other predatory products not generally offered by depository institutions.
The groups urged DoD to exempt depository institutions from the rule, warning that its
idiosyncratic Military APR cap of 36 percent (encompassing even low-rate credit
cards) and “vague and uncertain prohibitions” could force banks and credit unions out
of the military market – thus reducing access to mainstream credit for service
The proposal would also impose massive compliance burdens on all banks, whether
they serve military customers or not. While today service members and their families
must proactively identify themselves as such, DoD would require lenders to screen all
applicants for military status. This requires checking each applicant at least twice in a
Pentagon-run database – but the database is frequently unavailable, which would
mean “virtually all new consumer lending comes to a standstill.” Read the letter.
CFPB Backs DoD’s Proposed Tighter Military Lending Act Restrictions
The Consumer Financial Protection Bureau, however, endorsed the DoD proposal.
The Bureau had issued a report about how loopholes in the current Military Lending
Act rules are racking up costs for servicemembers. The report indicates that coverage
limits in the rules have allowed companies to offer high-cost loans to military families
by skirting the 36 percent rate cap and other military-specific credit protections. In its
news release, the Bureau cited an example of an Illinois lender that made a 12-month
auto title loan carrying an APR of 300 percent to a servicemember's spouse, and a
California company that charged an APR of 219 percent on a $2,600 payday loan.
Also cited was an Internet-based lender that used an open-end line of credit to exact
an APR of 584 percent from a Delaware servicemember. The report was issued in
connection with the Bureau's submission of a comment letter in support of the Defense
Department's proposal to expand the scope of its Military Lending Act rules.
“The products that have been marketed and extended to service members while the
current Military Lending Act regulations have been in place underscore the limitations