This post first appeared on the Securities Arbitration Alert blog.  The blog’s editor-in-chief is George H. Friedman, Chairman of the Board of Directors for Arbitartion Resolution Services, Inc.

The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) and the Federal Trade Commission (“FTC” or “Commission”) have filed an Amicus Brief in federal court, asserting among other things that the lender’s use of predispute arbitration agreements (“PDAA”) violated the Military Lending Act (“MLA”).

The brief, filed in Louis v. Bluegreen Vacations Unlimited, Inc., No. 22-12217 (11th Cir.), was announced in a November 22 post on the CFPB blog. Says the Bureau and Commission:

“The message of our brief is simple: when American servicemembers seek to enforce their rights in court, the plain text of the law lets them do that. Congress made clear that when a lender extends a loan to a servicemember that fails to comply with the MLA, the loan is rendered void in its entirety. And there is no doubt that Congress allowed servicemembers to ask federal courts to award restitution for payments made on the illegal loan and provide any other appropriate relief.”

MLA Bars Mandatory PDAAs

The MLA (10 U.S.C. § 987(e)(3)) makes it unlawful when: “the creditor requires the borrower to submit to arbitration or imposes onerous legal notice provisions in the case of a dispute….” The corresponding regulation (32 C.F.R. § 232.8(c)) states: “Title 10 U.S.C. 987 makes it unlawful for any creditor to extend consumer credit to a covered borrower with respect to which …[t]he creditor requires the covered borrower to submit to arbitration or imposes other onerous legal notice provisions in the case of a dispute.” We covered in SAA 2022-39 (Oct. 20) the CFPB’s Complaint in Consumer Financial Protection Bureau v. MoneyLion Technologies Inc., No. 1:22-cv-08308 (S.D.N.Y. Sep. 29, 2022), which states:

“The Bureau brings this action to enforce the Military Lending Act’s protections for U.S. Military active-duty servicemembers and their dependents and to enforce the Consumer Financial Protection Act’s protections for all U.S. consumers. Defendants MoneyLion Technologies, Inc. and the MoneyLion Lending Subsidiaries overcharged servicemembers and their dependents— imposing fees that, together with stated interest-rate charges, exceeded the Act’s limit of 36% Military Annual Percentage Rate (MAPR). Defendants collected on these illegal loans and associated fees, failed to give requisite disclosures, and inserted illegal arbitration clauses designed to take away servicemembers’ ability to vindicate their rights in court.”

The Complaint charges that:

“from about the fall of 2017 until at least August 2019, MLT and the MoneyLion Lending Subsidiaries made loans to covered borrowers by way of loan contracts requiring the borrowers to submit to arbitration in the case of a dispute, without exceptions for covered borrowers. MLT and the MoneyLion Lending Subsidiaries violated the MLA each time they made such a loan to a covered borrower.”

Another Brief Filed Earlier this Year

The Bureau in January this year filed an Amicus Brief in Davidson v. Unit Auto Credit Corp., No. No. 21-1697 (4th Circuit). The CFPB blog post says:

“The MLA also makes it illegal for the lender to require the borrower to waive certain legal rights or to agree to mandatory arbitration. Some car loans, however, are exempt from the MLA. In this case, the government filed a brief arguing that the MLA’s exemption for car loans does not apply to ‘hybrid loans’ that are used to finance both the purchase of a car and also the purchase of a Guaranteed Asset Protection (GAP) insurance policy. Such an interpretation is not only the best reading of the statute but is necessary to ensure that lenders are not able to evade the MLA by packaging MLA-exempt loans with otherwise non-exempt loans.”

(ed: *We’ll keep our eye on this issue.)