CFPB Submits Proposed Settlement To Resolve Military Lending And UDAAP Enforcement Action

On November 21, the CFPB and defendants jointly submitted a proposed stipulated final judgment and order to resolve litigation in the U.S. District Court for the Southern District of New York alleging violations of the Military Lending Act (MLA) and the CFPA’s UDAAP provisions by an online lender. As previously covered by InfoBytes, the court had allowed the CFPB to amend its complaint after it dismissed some claims but permitted others to proceed. The parties subsequently reported reaching an agreement in principle to settle the case, pausing further briefing while they finalized terms.

If approved, the proposed settlement would require the company and its affiliates to provide $1.75 million in redress to affected borrowers, including pro rata refunds of net membership fees and additional payments to borrowers who attempted but were unable to cancel memberships due to outstanding loan balances. The settlement would bar the company from charging or collecting membership fees as a condition of receiving a loan, preventing borrowers from cancelling memberships regardless of loan status, and from engaging in collections or negative credit reporting related to unpaid membership fees.

Among other things, the settlement would: (i) prohibit extending credit to military borrowers at a military annual percentage rate (MAPR) above 36 percent; (ii) allow certain membership fees to be excluded from MAPR if clearly disclosed and cancellable within two months; (iii) prohibit selling the right to collect unpaid membership fees on certain loans; and (iv) require reasonable steps to remove negative consumer reporting based on unpaid membership fees. The company would also be required to implement compliance monitoring, reporting and board-level oversight of settlement obligations. If approved by the court, the settlement would resolve all claims in the litigation.