Late last year, the CFPB issued a Consent Order against a Nevada-based military financing company specializing in installment lending for military personnel and those affiliated with the military over concerns the company’s practices violated the Military Lending Act (MLA), the Electronic Fund Transfer Act (EFTA), and the Consumer Financial Protection Act (CFPA).
According to the Consent Order, the company violated the MLA by requiring that servicemembers repay their loans by allotment. The allotment system was developed by the military, dating back to a period prior to automatic bill-pay and internet banking, permitting a recurring specified deduction in favor of a designated recipient as authorized by the servicemember from such servicmember’s pay check. Under the MLA, it is illegal for creditors to require servicemembers to repay their obligations by allotment.
Further, the company’s lending activities violated both the EFTA as well as the CFPA. Specifically, the company required that borrowers authorize it to make withdrawals from the borrower’s bank account in the event the borrower missed a payment. This requirement violates the EFTA prohibition on requiring preauthorization to make fund transfers as a condition of receiving credit. This violation of the EFTA also violated the CFPA prohibition on offering consumers financial products or services not in conformity with Federal law.
According to the Consent Order, the company must pay $2.175 million in civil penalties, refrain from any further violative conduct, and must inform servicemembers repaying by allotment of their options to change their repayment plans.