Compliance Blog

Earlier this month, the CFPB announced a lawsuit against LendUp, LLC for alleged non-compliance with the Military Lending Act (MLA). The complaint alleges violations of the Military Annual Percentage Rate (MAPR) cap, arbitration ban and disclosure requirements since at least 2016.

MAPR. Section 232.4 prohibits all creditors from imposing an MAPR in excess of 36% on consumer credit offered to covered borrowers. The MAPR calculation follows the APR calculations outlined in Regulation Z (section 1026.14 for open-end credit and section 1026.22 for closed-end credit) and generally includes fees for certain insurance or credit-related products, finance charges (as defined in Regulation Z), application fees and participation fees. The complaint alleges “LendUp has made over 4,000 single-payment or installment loans to over 1,200 covered borrowers, [with] an MAPR greater than 36%” and states each loan is a separate violation of the MAPR cap.

Arbitration Ban. Section 232.8(c) prohibits creditors from requiring covered borrowers to submit to arbitration in the event of a dispute related to the extension of consumer credit. According to the compliant, the bureau found “LendUp has made over 4,100 single-payment or installment loans to over 1,200 covered borrowers by way of loan agreements requiring the borrowers to submit to arbitration in the case of a dispute.” Here too, the compliant notes each loan is a separate violation of the MLA.

Disclosure Requirements. Section 232.6 requires creditors to provide certain disclosures to covered borrowers. The disclosures include a statement of the MAPR, all required Regulation Z disclosures and a description of the payment obligation. The complaint alleges “LendUp has extended over 4,100 single-payment or installment loans to over 1,200 covered borrowers without making all loan disclosures required by the MLA” and once again reiterates each loan is a separate violation.

Penalties. Under section 232.9(c), one key consequence of MLA violations is the entire loan agreement is void, meaning none of its provisions can be enforced against a covered borrower. In addition to rescinding all void agreements, the bureau also urges the court to require LendUp to correct information reported to consumer reporting agencies and pay damages to affected consumers, compensation for unjust enrichment and a civil money penalty.

In its announcement of the lawsuit, the bureau also indicated it is conducting more investigations related to violations of the MLA. Given the steep penalty that a loan agreement is void if certain violations are found, credit unions may find this to be a good time to review their own MLA compliance. For more information on this lawsuit and potential future litigation in this area, NAFCU will host a webinar with attorneys from Buckley LLP on February 4. You can find the link for registration, which will open soon, here.

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