The Consumer Financial Protection Bureau reports that it has received more than 2,500 complaints from servicemembers, veterans, and their dependents about high-cost consumer credit as of November 2015. The bureau analyzes these complaints in “A snapshot of servicemember complaints: Products impacted by the new Military Lending Act rule.”
Complaints. Consumers submitted their complaints to the CFPB under two different product categories: under the “payday” loan complaint category, or under the “debt collection” complaint category with the “payday” sub-product. The “payday” loan complaint category currently represents 3 percent of total servicemember complaints, while the “payday” loan sub-product category represents 19 percent of the complaints submitted by military consumers under the “debt collection” complaint category.
“Debt collection” is the largest complaint category for military consumers, as well as for all consumer complaints. Within the “debt collection” category, the number of complaints stemming from the “payday” sub-product is more than auto loans, mortgages, and student loans combined. Recent studies show that military consumers struggle with the repayment of high-cost credit products more than any other type of financial product. However, according to the bureau, recent updates from the Department of Defense to the regulation implementing the Military Lending Act should help servicemembers and their families avoid this type of high-cost debt going forward.
Amendments. The bureau concluded the snapshot by summarizing the changes made under the MLA:
- Lenders will be expected to comply with the new rule on Oct. 3, 2016, for all covered products other than credit cards. The compliance date for credit cards is Oct. 3, 2017.
- For loans covered by the MLA, the all-in cost of credit will be limited to an annual rate of 36 percent (referred to as the Military Annual Percentage Rate or MAPR). Included in the MAPR are costs like finance charges, credit insurance premiums or fees, and additional fees associated with credit such as application or participation fees, with some exceptions.
- The new rule extends the protections of the MLA to a broader range of consumer credit products than previously covered. The MAPR cap and other MLA protections will now apply to all consumer credit subject to disclosure under the Truth in Lending Act, except for certain statutory exceptions. These exceptions include residential mortgages and certain other secured loans for the purchase of personal goods and vehicles.
- For credit cards, there is a limited exclusion for “bona fide fees” when calculating the MAPR. This means that for credit cards some common fees, such as cash advance fees and foreign transaction fees, generally need not be included in the overall price limit.