– Jerry Kyser’s reaction to any reduction in federal oversight of companies that make high-interest loans to members of the military, their families and veterans was swift and sure.

“Absolutely nothing irritates us more than those lenders preying on service people,” said Kyser, chairman of the United Veterans Legislative Council of Minnesota. “We are categorically and vehemently against letting that slide.”

Mick Mulvaney, the acting director of the Consumer Financial Protection Bureau (CFPB), has upset dozens of groups advocating for current and former members of the military by studying policy changes that could leave the bureau reacting to lending abuses that violate the Military Lending Act rather than trying to stop them before they occur. 

Mulvaney has not spoken publicly about widespread news stories, first reported in August by the New York Times, that he is considering dialing back active monitoring and supervision of companies that lend to service members.

In a statement, CFPB spokesman John Czwartacki explained that “under new leadership, the Bureau has engaged in a comprehensive review of its activities and is assessing whether those activities align with its statutory authority. [The Military Lending Act] is one authority, among many, that the Bureau has examined. The Bureau expects to convey its findings to Congress and to seek legislative clarity where warranted.”

Ad urges policing efforts

Those words offer no comfort to advocates like Kyser or Kelly Hruska, director of government relations for the National Military Family Association (NMFA).

The NMFA was one of 26 service and veterans advocacy groups that purchased a full-page ad in the Sept. 6 Washington Post asking Mulvaney and Defense Secretary Jim Mattis to continue actively protecting the military from what advocates consider predatory lending.

The Military Lending Act limits the combined amount of interest, fees and other credit-related charges lenders may apply to active-duty service members to 36 percent per year. A 2014 Department of Defense (DoD) survey found that “11 percent of enlisted service members reported using payday loans, vehicle title loans, bank deposit advances, pawnshops and/or installment loans with interest rates over 36 percent [annually].”

DoD financial counselors and lawyers who answered the survey said high-interest obligations contributed to their clients’ problems.

The payday-lending industry’s chief trade group said only 1.5 percent of consumer financial complaints arise from small loans and that most of those arise from scams, not regulated lenders.

But with critics charging that some lending companies structure loans to require multiple borrowing episodes in order to pay back original notes, Hruska still believes deterrence is better than reaction.

“Our concern is that CFPB has been proactive [in the past],” Hruska said. “Our organization and others worked hard, along with the Department of Defense, over the last eight years to make sure the Military Lending Act worked.

“CFPB ferreted out who the bad players are. What happens when you’re reactive is that you never catch up. Lenders take advantage of service members and veterans again and again.”

Reducing supervisory role

Reducing the CFPB’s supervisory role in all kinds of financial monitoring has been a hallmark of Mulvaney’s takeover as acting director of the CFPB after the November 2017 resignation of Richard Cordray, the founding director appointed by President Barack Obama when financial reforms created the bureau in 2010. As a Republican member of the House, Mulvaney received tens of thousands of dollars in contributions from the payday-lending industry, according to the Center for Responsive Politics. Mulvaney once called for the bureau’s elimination.

Some others in the GOP, including Rep. Tom Emmer of Minnesota, as well as financial-trade groups and open-market organizations, have repeatedly criticized the CFPB’s broad powers. These critics say those policies are too open-ended, unaccountable to businesses and consumers and perhaps even unconstitutional.

Earlier this month, the Competitive Enterprise Institute (CEI) asked the Supreme Court to hear arguments to overturn an appeals court decision that ruled that the president can only fire the CFPB director for neglect or wrongdoing.

Emmer and Reps. Erik Paulsen and Jason Lewis, Minnesota’s other Republicans in Congress, did not respond to a Star Tribune question about whether CFPB should continue to actively monitor lenders for possible abuses under the Military Lending Act.

According to the Federal Deposit Insurance Corp. website, “statutory amendments” to the Military Lending Act in 2013 give CFPB enforcement authority for the law.

Democratic Rep. Tim Walz of Minnesota said that under Cordray, the CFPB did what Congress intended: It protected consumers from unscrupulous financial businesses.

When Walz commanded enlisted men and women as a senior noncommissioned officer, he faced a recurring task that had nothing to do with securing the nation.

“I spent a lot of time on the phone with finance companies,” he said.

Those companies made high-interest payday loans and other kinds of high-interest loans to Walz’s troops that they struggled to repay.

“It was the bane of my existence,” said Walz, now the DFL candidate for governor of Minnesota.

The possibility that the CFPB may reduce active monitoring and supervision of lending banned under the Military Lending Act strikes Walz as “ridiculous” and “reckless.”

Democratic Sen. Tina Smith of Minnesota said statistics show that service members are four times more likely to be targeted by predatory lenders. Smith signed a letter with 46 other Senate Democrats, including Sen. Amy Klobuchar of Minnesota, as well as two independents, urging Mulvaney to continue actively monitoring companies lending to service members and veterans. The letter was mailed to Mulvaney at the Office of Management and Budget, which he directs simultaneously while serving as acting director of the CFPB.

In Mulvaney’s response, he did not provide an answer to the letter writers’ requests. Instead, he sent a letter telling the senators that they sent their correspondence to the wrong address and would need to mail a letter to the CFPB to get an answer.