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CFPB seeking legislative fix to give it clear MLA examination authority

The CFPB announced yesterday that it has transmitted a proposal to Congress that would give it clear authority to conduct supervisory examinations for compliance with the Military Lending Act (MLA).

Last fall, former CFPB Acting Director Mulvaney reportedly announced that he planned to end routine examinations for MLA compliance because the Dodd-Frank Act did not give the CFPB the authority to conduct such examinations.  For the reasons we detailed, we agreed with Acting Director Mulvaney’s reading of Dodd-Frank.  As we observed, while the MLA gives the CFPB authority to enforce the MLA, nothing in the plain language of the MLA or Dodd-Frank currently gives the CFPB authority to conduct MLA examinations.  As might be expected, Mr. Mulvaney’s plan met with strong criticism from Democratic lawmakers and state attorneys general, who asserted that the CFPB did possess the requisite examination authority.

The CFPB’s legislative proposal would amend Sections 1024 and 1025 of Dodd-Frank which establish the CFPB’s supervisory authority as to, respectively, non-banks and banks with more than $10 billion in total assets.  It would add a substantially similar provision to each section that would provide that the CFPB has “nonexclusive authority to require reports and conduct examinations on a periodic basis…for the purposes of—”

  • assessing compliance with the MLA
  • obtaining information about the non-bank or bank’s activities and compliance systems or procedures
  • detecting and assessing risks to consumers and to markets for consumer financial products and services.

The proposal would also add language to Section 1026 of Dodd-Frank which addresses the CFPB’s supervisory authority as to banks with $10 billion or less in total assets to provide that the CFPB (1) can include its examiners in examinations performed by a bank’s prudential regulator to assess not only the bank’s compliance with “Federal consumer financial law” but also MLA compliance, and (2) the requirement for the CFPB to notify a bank’s prudential regulator and recommend appropriate action when it has reason to believe the bank has engaged in potential violations includes not only material violations of a “Federal consumer financial law” but also material violations of the MLA.

Copyright © by Ballard Spahr LLP

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Culhane, Ballard, Partner
Partner

John L. Culhane, Jr., is known for his work advising on interstate direct and indirect consumer and residential mortgage loan and leasing programs, through both traditional brick-and-mortar facilities and e-commerce. Before joining Ballard Spahr, Mr. Culhane was associate counsel with Mellon Bank, N.A.; associate counsel with Bank of America NT&SA; and senior attorney (section chief) with the National Credit Union Administration, the federal agency regulating federal credit unions.

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Anthony Kaye, Ballard Spahr Law Firm, New York, Business Litigation Attorney
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Anthony C. Kaye focuses on business litigation and complex civil litigation at both the trial and appellate levels in federal and state courts throughout the United States. Mr. Kaye has defended high-stakes, complex matters in a wide variety of areas, including consumer financial and mortgage banking services, intellectual property, business governance disputes, communications, product liability and mass torts, and real estate and construction.

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