A case before the U.S. Supreme Court could threaten the future of an independent agency within the Federal Reserve System that helped crack down on payday lenders that once charged veterans exorbitant interest rates -- alarming some in the military and veteran communities.
Dismantling the Consumer Financial Protection Bureau, or CFPB, would be disastrous to service members and veterans who rely on the federal agency to protect them from fraud and predatory financial organizations, the Military Officers Association of America, or MOAA, and the National Military Family Association, or NMFA, said Thursday.
The bureau has protected thousands of troops and vets from predatory lenders, effectively enforced the 36% rate cap on loans to service members and their families stipulated by the Military Lending Act, and recouped millions of dollars for veterans who were victims of fraud, members of the two groups told the Senate Committee on Banking, Housing and Urban Affairs during a public hearing.
"MOAA is gravely concerned by the potential weakening of the CFPB. We believe that, without a robust CFPB, service members, veterans and their families would lose a vital defender and the only federal agency mandated to safeguard their financial interests," said Cory Titus, the group's director of government relations for veteran benefits and Guard and reserve affairs.
"If CFPB is weakened or eliminated, we will lose the only federal agency that is investigating violations of and enforcing the [Military Lending Act] -- a task that will fall to the Department of Defense," said Kelly Hruska, government relations director for NMFA.
The Supreme Court heard oral arguments last month in the case CFPB v. Community Financial Services Association of America, a trade organization that represents payday lenders, many of which offer instant loans to consumers at extremely high rates of interest -- a practice often referred to as predatory lending.
In its case, the Community Financial Services Association of America challenged the bureau's prohibition on lenders attempting to withdraw loan repayments from borrowers' bank accounts multiple times. The practice can result in significant overdraft fees for the account holder.
But supporters say the case isn't simply about one CFPB rule. They argue that the challenge is an attempt to chip away the power of the bureau or dismantle it altogether. The bureau was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 to protect consumers from financial schemes and predators.
CFPB is an independent agency within the Federal Reserve System. Since it was created, it has cracked down on payday lenders that often charged service members annual interest rates of 200% to 300% prior to enactment of the Military Lending Act.
It also has worked on behalf of veterans to protect them from education loan facilitators presenting themselves as representatives of the Department of Veterans Affairs, and it made inroads in expunging medical debt from credit reports.
According to the bureau's Office of Servicemember Affairs annual report, the organization received 66,400 complaints from service members in 2022, with the top issues being unsolvable issues with their credit reports and credit card and debt collection problems, all of which can affect a service member's ability to keep their security clearance.
The bureau, however, also is a political lightning rod, with critics saying its regulatory oversight is too broad, stifling financial business practices and pushing people out of the housing market by overstepping its bounds on mortgage protections.
In 2018, under the administration of President Donald Trump, the CFPB stopped its examination of Military Lending Act-related activities based on new leadership's thoughts that the CFPB didn't have the authority to do those examinations according to the law that governs it.
That watchdog oversight capability was restored in 2021 by the Biden administration.
During the hearing, Sen. Mike Rounds, R-S.D., noted that Congress has mandated that service members receive financial literacy training, yet many troops and veterans continue to face difficulties managing their money and remain vulnerable to fraud.
"We must ask ourselves if these programs are operating as effectively as they could and if they are truly improving service members' and veterans' financial outcomes, or have they become more of a check-the-box exercise to meet minimum requirements?" Rounds said. "Federal mandates are never a silver bullet."
"It sounds really good to say that private enterprise is not treating our veterans with care or not treating them fairly," Rounds added. "But in my opinion, we need to cut through the red tape at the federal level to ensure that the veterans can access the benefits they've earned."
Committee Chairman Sen. Sherrod Brown, D-Ohio, praised the work of CFPB and its Office of Servicemember Affairs, noting that the organization has drastically reduced the effects payday lenders have on service members and military families, reducing bankruptcies and improving quality of life for many by assisting them when they have been targets of unscrupulous financial organizations.
"Every year, tens of thousands of service members go and seek out CFPB. You can't say you support military veterans and families while trying to dismantle the CFPB," Brown said. "Military families don't have high-priced lobbyists, they have CFPB. They don't have corporate lawyers, they have CFPB. [These families] ought to be able to count on all of us in this room."
In addition to MOAA and NMFA, 13 other military and veterans service organizations submitted an amicus brief to the Supreme Court in support of CFPB for the case. The groups included the American Legion, Veterans of Foreign Wars, Disabled American Veterans, Vietnam Veterans of America and others.
The court's decision is expected to be issued in the beginning of 2024.
-- Patricia Kime can be reached at Patricia.Kime@Military.com.
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