It’s Time to Review Your Military Lending Act (“MLA”) and Service Members’ Civil Relief Act (“SCRA”) Compliance Programs
July 22, 2021: So, right now – in July — is a good time to review your MLA and SCRA compliance programs. The DoD’s amended MLA regulation became effective for pawn transactions on October 3, 2016. The SCRA has been in place for decades, although it is amended frequently. These are two separate federal laws.
The MLA limits the interest and service fees that pawnbrokers may impose on their customers to a 36% Annual Percentage Rate. (This works out to slightly less than 3% per month.) The “covered borrowers”eligible for the MLA rate and charges cap are active-duty members of the military, their spouses, and dependents for which the service member provides at least 50% of the person’s support. The MLA regulation requires disclosure of a Military Annual Percentage Rate (“MAPR”) in addition to the TILA disclosures included in the TILA “box” you already make – if the consumer is a “covered borrower”.
The CFPB uses broad authority to enforce the MLA regulation. Some Virginia pawnbrokers were sued in 2016, 2017 and 2019, and the CFPB has also sued other kinds of credit providers in many states. The CFPB uses civil-investigative demands (“CIDs”) to obtain information from providers about their consumer transactions and often demands copies of records back for five years – a period longer than your state pawn law may require you to retain records, but a period consistent with other federal consumer protection laws. Complying with CFPB investigations is expensive and time consuming.
Transactions that violate the MLA regulation are “void” and unenforceable. Providers must refund interest and other charges and lose their right to collect the unpaid principle. Consumers also have private rights of action against credit providers who do not comply with the MLA regulation.
The Department of Justice enforces the SCRA and its special rate cap of 6% per year, including most fees, for armed forces members called to active duty, including reservists. The rate cap becomes effective on notice from the service member to the creditor, or on the date of the call-up orders.
Since the CFPB has new leadership, we highly recommend that you review your MLA and SCRA compliance programs:
- Find an NPA Industry Partner for consultation
- Read up on MLA
- Read up on CFPB delivering a Civil Investigative Demand (CID)
- Read the CFPB’s announcement of “Military Consumer Month”
This GRC Update is not intended and should not be construed as legal advice to NPA members.Members should consult their own lawyers for legal advice.Copyright © National Pawnbrokers Association 2021. All rights reserved.