[Federal Register Volume 86, Number 118 (Wednesday, June 23, 2021)]
[Rules and Regulations]
[Pages 32723-32728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13074]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Chapter X


Examinations for Risks to Active-Duty Servicemembers and Their 
Covered Dependents

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Interpretive rule.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) has 
statutory authority to conduct examinations, at those institutions that 
it supervises, regarding the risks to active-duty servicemembers and 
their covered dependents that are presented by conduct that violates 
the Military Lending Act. This interpretive rule explains the basis for 
that authority.

DATES: This interpretive rule is effective on June 23, 2021.

FOR FURTHER INFORMATION CONTACT: Christopher Shelton, Senior Counsel, 
Legal Division, (202) 435-7700. If you require this document in an 
alternative electronic format, please contact 
<a href="/cdn-cgi/l/email-protection#df9c998f9d809ebcbcbaacacb6bdb6b3b6aba69fbcb9afbdf1b8b0a9"><span class="__cf_email__" data-cfemail="eeada8beacb1af8d8d8b9d9d878c8782879a97ae8d889e8cc0898198">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The Consumer Financial Protection Act of 2010 (CFPA) authorizes the 
Bureau to conduct examinations of supervised nonbanks for the purposes 
of assessing and detecting ``risks to consumers.'' As explained below, 
the risks to active-duty servicemembers and their dependents from 
conduct that violates the Military Lending Act (MLA) fall squarely 
within that category. The CFPA also authorizes the Bureau to conduct 
examinations of very large banks and credit unions for purposes of 
detecting and assessing those ``risks to consumers'' that are 
``associated'' with ``activities subject to'' Federal consumer 
financial laws, such as the Truth in Lending Act (TILA) or the CFPA.\1\ 
Because conduct that violates the MLA is associated with activities 
that are subject to TILA and the CFPA, that standard is also satisfied 
here. The Bureau's interpretation is also entirely consistent with the 
enforcement scheme of the MLA, which by incorporating TILA's 
enforcement scheme authorizes the Bureau to use formal administrative 
adjudications, civil enforcement actions, and other authorities to 
enforce the MLA. That enforcement scheme is complemented by the 
Bureau's use of the examination process to detect and assess risks to 
consumers arising from violations of the MLA. This reading also avoids 
an unworkable gap in Bureau examinations that can otherwise only be 
potentially filled by the formal enforcement process; based on the 
Bureau's experience, that gap leads to wasteful inefficiencies for both 
the Bureau and supervised institutions. Additionally, the Bureau is no 
longer persuaded by counterarguments that it does not have the relevant 
authority, for reasons that will also be discussed below.
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    \1\ This interpretive rule uses the terms ``supervised nonbank'' 
and ``very large bank or credit union'' for convenience. The more 
precise definitions of the persons that are subject to the Bureau's 
supervisory authority under sections 1024 and 1025 of the CFPA are 
set out in the statute. 12 U.S.C. 5514(a), 5515(a). The Bureau also 
has certain additional supervisory authority regarding service 
providers to these persons, and the reasoning of this interpretive 
rule also extends to those service providers. 12 U.S.C. 5514(e), 
5515(d).
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    This part I is followed by part II, which provides some general 
background about the CFPA, the MLA, TILA, and the history of Bureau 
examinations regarding the MLA. Part III sets out the Bureau's analysis 
of its authority with respect to supervised nonbanks, including the 
statutory text; the statutory scheme; and counterarguments that the 
Bureau no

[[Page 32724]]

longer finds persuasive. Part IV addresses the parallel issue in the 
context of very large banks and credit unions. Part V concludes with 
some regulatory matters.

II. Background

A. Consumer Financial Protection Act of 2010

    The CFPA establishes the Bureau as an independent bureau in the 
Federal Reserve System and assigns the Bureau a range of rulemaking, 
enforcement, supervision, and other authorities.\2\ Many of these 
authorities relate to the body of ``Federal consumer financial law,'' 
which the CFPA defines to include the CFPA itself, TILA, and a number 
of other statutes, rules, and orders, but it does not include the 
MLA.\3\ For example, one of the Bureau's authorities is to ``prescribe 
rules . . . as may be necessary or appropriate to enable the Bureau to 
administer and carry out the purposes and objectives of the Federal 
consumer financial laws, and to prevent evasions thereof.'' \4\ A 
notable substantive provision of the CFPA is its prohibition on unfair, 
deceptive, or abusive acts or practices.\5\ The CFPA also requires the 
Director of the Bureau to establish several offices, including an 
Office of Service Member Affairs.\6\
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    \2\ CFPA section 1011(a), 12 U.S.C. 5491(a); see generally 
Public Law 111-203, tit. X, 124 Stat. 1376, 1955-2113 (2010).
    \3\ CFPA section 1002(14), 12 U.S.C. 5481(14).
    \4\ CFPA section 1022(b)(1), 12 U.S.C. 5512(b)(1).
    \5\ CFPA sections 1031, 1035, 12 U.S.C. 5531, 5535.
    \6\ CFPA section 1013(e), 12 U.S.C. 5493(e).
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    The key CFPA provisions that are relevant to this interpretive rule 
are sections 1024 and 1025. Section 1024 addresses Bureau supervision 
of specified categories of nonbanks--for example, any covered person 
who ``offers or provides to a consumer a payday loan''--while section 
1025 addresses Bureau supervision of ``very large'' depository 
institutions and credit unions, which are generally those with more 
than $10 billion in total assets and their affiliates.\7\
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    \7\ 12 U.S.C. 5514, 5515. As explained in note 1, this 
interpretive rule uses the terms ``supervised nonbank'' and ``very 
large bank or credit union'' for convenience.
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    Section 1024(b)(1) provides that the Bureau ``shall require reports 
and conduct examinations on a periodic basis of'' a supervised nonbank 
for purposes of: ``(A) assessing compliance with the requirements of 
Federal consumer financial law; (B) obtaining information about the 
activities and compliance systems or procedures of such person; and (C) 
detecting and assessing risks to consumers and to markets for consumer 
financial products and services.'' \8\
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    \8\ 12 U.S.C. 5514(b)(1).
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    Section 1025(b)(1) contains parallel but slightly different 
language. It provides that the Bureau ``shall have exclusive authority 
to require reports and conduct examinations on a periodic basis of'' 
very large banks and credit unions for purposes of: ``(A) assessing 
compliance with the requirements of Federal consumer financial laws; 
(B) obtaining information about the activities subject to such laws and 
the associated compliance systems or procedures of such persons; and 
(C) detecting and assessing associated risks to consumers and to 
markets for consumer financial products and services.'' \9\
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    \9\ 12 U.S.C. 5515(b)(1) (emphasis added).
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    These differences in wording between section 1024(b)(1) and section 
1025(b)(1) are explained by the structure of the statute. Very large 
banks and credit unions have long been subject to supervisory 
examinations by the prudential regulators, who continue to examine 
these institutions for a broad range of purposes.\10\ By contrast, the 
supervised nonbanks that are covered by section 1024(b)(1) were 
generally not subject to examination by the Federal government before 
the creation of the Bureau.\11\ The purposes of Bureau examinations 
under sections 1024(b)(1) and 1025(b)(1) are both broad. But it was 
natural, to ensure thorough Federal examination of supervised nonbanks, 
for Bureau examinations of those nonbanks to cover an even broader 
range of subject matters than the Bureau's examinations of very large 
banks and credit unions. (For example, the Bureau can obtain 
information about all of a supervised nonbank's compliance systems or 
procedures, not only those that are ``associated'' with activities 
subject to Federal consumer financial laws.)
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    \10\ Under the CFPA, the ``prudential regulators'' are the Board 
of Governors of the Federal Reserve System (Federal Reserve), the 
Office of the Comptroller of the Currency (OCC), the Federal Deposit 
Insurance Corporation (FDIC), and the National Credit Union 
Administration (NCUA). See CFPA section 1002(24), 12 U.S.C. 
5481(24). For convenience, this interpretive rule also uses that 
term anachronistically to refer to the Federal Home Loan Bank Board, 
which existed until 1989, and the Office of Thrift Supervision, 
which existed from 1989 until 2011.
    \11\ As the legislative history of the CFPA explains, the 
Bureau's new authority with respect to these nonbanks remedied the 
previous situation, where the ``lack of any effective supervision on 
nondepositories led to a `race to the bottom' in which the 
institutions with the least effective consumer regulation and 
enforcement attracted more business . . . .'' S. Rept. 111-176, at 
10 (2010). At the same time, the Bureau's authorities are not 
limited to addressing the specific problems that existed prior to 
the CFPA. See id. at 11 (``The CFPB will have enough flexibility to 
address future problems as they arise. Creating an agency that only 
had the authority to address the problems of the past, such as 
mortgages, would be too short-sighted. Experience has shown that 
consumer protections must adapt to new practices and new 
industries.'').
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    Accordingly, with respect to supervised nonbanks that are covered 
by section 1024(b)(1), the relevant question here is whether there are 
``risks to consumers'' arising from conduct that violates the MLA that 
the Bureau may detect and assess. In the case of very large banks and 
credit unions that are covered by section 1025(b)(1), there is the 
additional question of whether such ``risks to consumers'' are 
``associated'' with ``activities subject to'' Federal consumer 
financial laws, such as TILA or the CFPA.\12\
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    \12\ Note that the term ``associated'' in section 1025(b)(1)(C) 
is best read as meaning ``associated'' with ``the activities subject 
to such laws'' in section 1025(b)(1)(B), where ``such laws'' refers 
back to ``Federal consumer financial laws'' in section 
1025(b)(1)(A). This reading flows naturally from the order in which 
the provisions appear. However, as discussed below, this 
interpretive rule would reach the same conclusion if ``associated'' 
in section 1025(b)(1)(C) were read to mean ``associated'' with 
violations of Federal consumer financial laws. MLA violations are 
both associated with activities subject to Federal consumer 
financial law and associated with violations of Federal consumer 
financial law. Also note that, since the Bureau concludes that the 
above standards are satisfied, this interpretive rule does not need 
to consider whether there are also other statutory bases for the 
Bureau's authority to conduct examinations of supervised nonbanks 
and very large banks and credit unions related to the MLA.
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B. Military Lending Act

    The MLA, also known as the Talent Amendment, was bipartisan 
legislation first enacted in 2006.\13\ As Senator Talent explained 
during the passage of the MLA: ``The fact is, predatory payday lenders 
are targeting American troops and are trying to make a buck off of 
their service to our country. . . . This is a national problem. 
Predatory payday lenders set up shop near our military bases throughout 
the country and prey on our servicemembers. . . . Our troops deserve 
uniform, national protection against abusive financial practices that 
target them.'' \14\
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    \13\ 10 U.S.C. 987.
    \14\ 152 Cong. Rec. S6406 (June 22, 2006) (statement of Sen. 
Talent).
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    The MLA establishes safeguards when creditors extend consumer 
credit to certain active-duty members of the armed forces or their 
covered dependents. The statute is implemented through regulations 
issued by the Department of Defense, in consultation with other 
specified agencies including the Bureau.\15\ The Department of

[[Page 32725]]

Defense has explained that under its implementing regulations, as 
revised in 2015, consumer credit for purposes of the MLA is, in 
general, ``defined consistently with credit that for decades has been 
subject to the disclosure requirements of the Truth in Lending Act 
(TILA), codified in [the Bureau's] Regulation Z.'' \16\ However, there 
are some instances where the definition of consumer credit under the 
MLA and its implementing regulations is narrower than under TILA.\17\
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    \15\ 10 U.S.C. 987(h). Congress added the Bureau to the list of 
agencies that the Department of Defense consults in 2013.
    \16\ 80 FR 43559, 43560 (July 22, 2015).
    \17\ See, e.g., 32 CFR 232.3(f)(2) (exceptions from definition 
of ``consumer credit'' for purposes of the MLA).
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    One of the MLA's safeguards is a prohibition on imposing interest 
at a military annual percentage rate (MAPR) of greater than 36 percent, 
where MAPR is calculated by reference to TILA's annual percentage rate 
(APR), with some specified differences.\18\ The MLA also establishes a 
number of other limitations on the terms of credit transactions, such 
as a prohibition on rolling over credit under certain circumstances; a 
prohibition on requiring, as a condition for the extension of credit 
that, the borrower establish an allotment to repay an obligation; and a 
prohibition on prepayment penalties or fees.\19\ The MLA requires 
disclosures that are based on TILA disclosures with additional 
supplementary information, such as a statement regarding the MAPR in 
addition to the disclosure of the TILA APR.\20\
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    \18\ 10 U.S.C. 987(b); 32 CFR 232.4(c).
    \19\ 10 U.S.C. 987(e); 32 CFR 232.8.
    \20\ 10 U.S.C. 987(c); 32 CFR 232.6.
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    Conduct that violates the MLA may also violate TILA's disclosure 
requirements, or occur concurrently with violations of TILA's 
disclosure requirements, since the MLA's disclosure requirements 
incorporate and supplement TILA's. Conduct that violates the MLA may 
also overlap with violations of the CFPA's prohibition on deceptive 
acts or practices or other violations of Federal consumer financial 
law.
    Congress provided that any contract prohibited by the MLA ``is void 
from the inception of such contract.'' \21\ As the MLA's implementing 
regulations further explain, any contract with a covered borrower that 
fails to comply with the MLA or which contains one or more provisions 
prohibited under the MLA is void from the inception of the 
contract.\22\ The MLA also provides criminal penalties for creditors 
that knowingly violate the statute.\23\ However, as originally enacted 
in 2006, the MLA did not address administrative enforcement.
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    \21\ 10 U.S.C. 987(f)(3).
    \22\ 32 CFR 232.9(c).
    \23\ 10 U.S.C. 987(f)(1).
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    In 2013, Congress amended the MLA to provide that it ``shall be 
enforced by the agencies specified'' in section 108 of TILA, ``in the 
manner set forth in that section or under any other applicable 
authorities available to such agencies by law.'' \24\ As the conference 
report explained, ``for the purposes of the enforcement authority under 
this section, a violation of the Military Lending Act would be treated 
as though it were a violation of the Truth in Lending Act.'' \25\ Thus, 
the authorities in section 108 of TILA, which are discussed below, are 
applicable to the MLA.
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    \24\ Public Law 112-239, sec. 662(b), 126 Stat. 1631, 1786 (Jan. 
2, 2013) (adding 10 U.S.C. 987(f)(6)). The provision of the MLA 
concerning criminal penalties is excepted from this authority; that 
provision is outside the scope of this interpretive rule. Id. 
(cross-referencing 10 U.S.C. 987(f)(1)).
    \25\ H.R. Conf. Rep. No. 112-705, at 775 (2012).
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C. Truth in Lending Act

    Section 108 addresses administrative enforcement of TILA. It 
provides that TILA ``shall be enforced'' by a list of enforcing 
agencies, including the applicable prudential regulators and, since 
2010, the Bureau.\26\ In the case of the prudential regulators, section 
108 specifies that they shall enforce TILA under statutory provisions 
that authorize, among other things, administrative adjudications for 
cease-and-desist orders and civil money penalties.\27\ In the case of 
the Bureau, section 108 provides that TILA shall be enforced under 
subtitle E of the CFPA. Subtitle E authorizes the Bureau to, among 
other things, conduct administrative adjudications, initiate civil 
enforcement actions, and send civil investigative demands.\28\ Section 
108 further provides that each of the enforcing agencies ``may 
exercise, for the purpose of enforcing compliance'' with TILA, ``any 
other authority conferred on it by law.'' \29\
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    \26\ 15 U.S.C. 1607(a), (c), as amended by Public Law 111-203, 
title X, Sec.  1100A, 124 Stat. 1376, 2107-09 (2010). The agencies' 
authority to enforce TILA under section 108 is ``subject to'' 
subtitle B of the CFPA. Id. Subtitle B, among other things, 
allocates supervisory and enforcement authority between the Bureau 
and the prudential regulators. See 12 U.S.C. 5514-16.
    \27\ 15 U.S.C. 1607(a)(1), (a)(2) (citing section 8 of the 
Federal Deposit Insurance Act, 12 U.S.C. 1818, and the Federal 
Credit Union Act, 12 U.S.C. 1751 et seq.).
    \28\ E.g., CFPA sections 1052-54, 12 U.S.C. 5562-64.
    \29\ 15 U.S.C. 1607(b).
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    As general background, since TILA's enactment in 1968, the 
prudential regulators have relied heavily on bank examinations in order 
to implement TILA. As noted above, each of the prudential regulators 
has longstanding statutory authority to ``examine'' or conduct 
``examinations'' of banks or credit unions.\30\ As the Federal Reserve 
reported to Congress in 1972, in its capacity as the agency that wrote 
regulations to implement TILA: ``For the most part, compliance [with 
TILA] is determined by [the prudential regulators] during the regular 
periodic examinations of the creditors under their jurisdiction.'' \31\ 
The Federal Reserve similarly reported to Congress in 1983 that the 
five prudential regulators ``enforce compliance with [TILA and three 
other consumer finance statutes] mainly through periodic 
examinations.'' \32\ Along the same lines, the Comptroller of the 
Currency testified to Congress in 2007 that the ``primary method that 
federal banking agencies use to implement consumer protection standards 
is direct supervision--not formal enforcement actions--of the banks we 
supervise.'' \33\
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    \30\ E.g., 12 U.S.C. 248, 325, 481, 1464(a), (d)(1)(B)(ii), 
(d)(1)(B)(v), 1756, 1784(a), 1819(a)(Eighth), 1820(b), (c), (d)(1).
    \31\ Federal Reserve, Truth in Lending for the Year 1971, 
reprinted in 118 Cong. Rec. 816, 817 (Jan. 24, 1972).
    \32\ Federal Reserve, Annual Report to Congress for 1982 (Apr. 
1983).
    \33\ Statement by John C. Dugan, Comptroller of the Currency, 
Before the H. Comm. on Fin. Servcs. (June 13, 2007).
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D. History of Bureau Examinations Regarding the MLA

    In September 2013, the Bureau amended its short-term, small-dollar 
lending examination procedures to advise examiners that they ``should 
review for MLA violations, which evidence risks to consumers and may 
require supervisory or enforcement action.'' \34\ This was about two 
years into the history of the Bureau's examination program and about 
nine months after the MLA was amended to provide the Bureau with 
authority to enforce the MLA in the same manner as it is authorized to 
enforce TILA. As far as the Bureau is aware, no supervised entity ever 
disputed the propriety of this aspect of the Bureau's examinations by

[[Page 32726]]

appealing a supervisory determination regarding the MLA.
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    \34\ CFPB Examination Procedures, Short Term, Small Dollar 
Lending, at Procedures 11 (Sept. 2013), https://files.consumerfinance.gov/f/201309_cfpb_payday_manual_revisions.pdf. 
These particular procedures are no longer applicable, among other 
reasons because they do not reflect subsequent revisions to the 
Department of Defense's regulations implementing the MLA.
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    In 2018, the Bureau discontinued examination activity regarding the 
MLA. This was because the Bureau changed its position, taking the view 
that it lacked the authority to engage in MLA-related examination 
activity, for reasons that will be discussed below.\35\ In 2019, the 
Bureau wrote to Congress to suggest legislation to ``clarify the 
[Bureau's] authority to supervise for compliance with the [MLA].'' \36\
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    \35\ See Letter from Kathleen L. Kraninger, Director of the 
Bureau, to Senator Sherrod Brown (Feb. 1, 2019).
    \36\ Letter from Kathleen L. Kraninger, Director of the Bureau, 
to the Hon. Nancy Pelosi, Speaker, House of Representatives (Jan. 
17, 2019), https://files.consumerfinance.gov/f/documents/cfpb_MLA-legislative-proposal-to-Pelosi.pdf. No legal conclusion can be drawn 
from the fact that this particular proposal has not as yet been 
enacted.
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    The Bureau is now returning to the original position that it took 
from 2013 until 2018. The Bureau believes that it does have the 
requisite authority, and that the view that it originally took in 2013 
was the correct one, for the reasons discussed below.

III. Analysis of Section 1024(b)(1)(C) (Supervised Nonbanks)

A. Statutory Text

    Section 1024(b)(1)(C) of the CFPA, in relevant part, 
straightforwardly authorizes the Bureau to conduct examinations of 
supervised nonbanks for purposes of detecting and assessing ``risks to 
consumers.'' \37\ As the Supreme Court has explained in another 
context: ``Congress knows to speak in plain terms when it wishes to 
circumscribe, and in capacious terms when it wishes to enlarge, agency 
discretion.'' \38\
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    \37\ The statute also includes the authority to ``require 
reports.'' CFPA sections 1024(b)(1), 1025(b)(1), 12 U.S.C. 5514, 
5515. This analysis focuses on the authority to conduct examinations 
for simplicity, but the same analysis would be applicable to 
requiring reports, because the same operative statutory language is 
also applicable to requiring reports.
    \38\ City of Arlington, Tex. v. FCC, 569 U.S. 290, 296 (2013) 
(Scalia, J.).
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    ``Risks to consumers'' that arise from conduct that violates the 
MLA fall well within that capacious phrase. Such conduct risks having 
adverse financial consequences for active-duty service members and 
their covered dependents. One reason why these consequences can be 
particularly significant for military families is that financial status 
can affect servicemembers' ability to maintain their security 
clearances and therefore maintain their military careers. Congress 
considered the risk of harm from contracts made in violation of the MLA 
so severe that it made such contracts entirely void.

B. Statutory Scheme

    A statute should be interpreted ``as a symmetrical and coherent 
regulatory scheme.'' \39\ Here, the statutory scheme provides 
additional confirmation that ``risks to consumers'' include conduct 
that violates the MLA, for three main reasons.
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    \39\ Roberts v. Sea-Land Servs., Inc., 566 U.S. 93, 103 (2012) 
(quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 
(2000) (quoting Gustafson v. Alloyd Co., 513 U.S. 561, 569 (1995))).
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    First, the Bureau believes that risks of harm to consumers that the 
Bureau can address through its enforcement authority, when that proves 
necessary, are logically within the core of ``risks to consumers'' that 
the Bureau can detect and assess. There can be many types of risks to 
consumers, and the Bureau's ability to use its range of authorities to 
remedy those risks can vary in effectiveness. But if ``risks to 
consumers'' did not include, at the very least, those risks that are so 
severe and so central to the Bureau's consumer-protection mission that 
they can lead to a Bureau enforcement action for civil money penalties, 
restitution, disgorgement, and other relief,\40\ it is unclear what 
remaining meaning the category would have. It would be anomalous to 
read out of the category of ``risks to consumers'' a type of risk that 
the Bureau can--out of all the potential risks to consumers--forcefully 
remedy through enforcement action if that becomes necessary. Thus, not 
only does conduct that violates the MLA fall within the plain language 
of ``risks to consumers,'' in the Bureau's view it is not a borderline 
case, but sits within the core of the provision.
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    \40\ See CFPA section 1055, 12 U.S.C. 5565.
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    Second, the Bureau's textual interpretation is the most effective 
way of carrying out the statutory scheme of the CFPA and MLA. When the 
Bureau is already examining a supervised nonbank or very large bank or 
credit union for potential violations of TILA that are intertwined with 
potential violations of the MLA, it is especially inefficient for both 
the Bureau and the supervised institution if the Bureau relies 
exclusively on enforcement tools under Subtitle E of the CFPA to 
identify and address MLA violations, closing off any use of the 
Bureau's supervisory process to detect and assess these risks to 
consumers. As one example, under the contrary interpretation, verifying 
TILA disclosures may be the work of a Bureau examiner, but scrutinizing 
the related MLA disclosures in the very same document would be reserved 
to a Bureau enforcement attorney, who would normally obtain copies of 
those disclosures by sending a civil investigative demand. The Bureau 
believes that the capacious reference to ``risks to consumers'' in 
section 1024(b)(1)(C)--when read according to its plain terms--avoids 
this incongruous result by allowing examiners to consider the 
potentially overlapping MLA and TILA issues together in one review.
    A third reason why examinations regarding the MLA complement the 
Bureau's enforcement authority under Subtitle E is that such 
examinations can play a role in preventing violations of the MLA before 
they occur. In a Bureau examination to detect and assess the risk that 
consumers will be harmed by violations of the MLA, the Bureau is able 
to detect and assess not only fully completed violations of the MLA, 
but also practices by the supervised institution that present a danger 
of violations of the MLA and therefore risk harm to consumers. For 
example, one important practical step that creditors generally need to 
take, in order to avoid violations of the MLA, is to correctly identify 
which of their borrowers are active-duty servicemembers or covered 
dependents and therefore protected by the MLA.\41\ If examiners observe 
an error or deficiency in the processes that a supervised institution 
uses to identify borrowers that are covered by the MLA, they can alert 
the institution of their assessment in their examination report or 
supervisory letter, and this may occur before the danger manifests in 
an actual violation of the MLA that in turn harms consumers. When 
Bureau examiners work cooperatively with supervised institutions to 
identify and address risks to consumers before they harm consumers, 
both the Bureau and supervised institutions can often avoid an after-
the-fact enforcement action under Subtitle E of the CFPA. The Bureau 
believes that this is a prime example of a proper exercise of its 
authority under section 1024(b)(1)(C) to conduct examinations for the 
purpose of detecting and assessing risks to consumers.
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    \41\ See 32 CFR 232.5.
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C. Discussion of Counterarguments

    During the period when it ceased MLA-related examination activity, 
the Bureau was persuaded by arguments that it lacked this authority. 
But for the following reasons, the Bureau no longer finds these 
arguments persuasive.
    First, the Bureau's interpretation during this period was informed 
by the fact that the MLA is not a Federal consumer financial law, which 
is the focus of the examination authority in the separate section 
1024(b)(1)(A) of the

[[Page 32727]]

CFPA. The Bureau asserted that Congress confined the Bureau's authority 
to assess compliance to Federal consumer financial law and not 
compliance with other laws; that Congress intended not to confer 
examination authority with respect to the MLA, since it did not add the 
MLA to the definition of Federal consumer financial law; and that the 
Bureau would be circumventing Congress's intentions by conducting 
examinations related to the MLA.
    The Bureau no longer accepts this argument, because the argument 
relies on assumptions about Congress's intentions that are not 
expressed anywhere in the statutory text or any legislative history. 
There is nothing in the statute to suggest that ``risks to consumers'' 
can never include violations of law. (Indeed, in the case of the MLA, 
Congress enacted it precisely because there were risks to active-duty 
servicemembers and their families.) Moreover, to the extent it is 
appropriate to speculate about Congress' choice to not amend the 
definition of Federal consumer financial law, it is understandable why 
Congress would not have added the MLA to that definition. As noted 
above, the Bureau has general rulemaking authority with respect to 
Federal consumer financial law, but Congress gave the Department of 
Defense, not the Bureau, general rulemaking authority for the MLA. 
Adding the MLA to the definition of Federal consumer financial law 
would have led to potential confusion about which agency, or both, has 
this significant rulemaking authority. Lastly, to assert that the 
Bureau is circumventing Congress's intentions is conclusory. Again, had 
Congress wished to more closely ``circumscribe . . . agency 
discretion,'' it would not have used the ``capacious terms'' that it 
did.\42\
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    \42\ City of Arlington, 569 U.S. at 296.
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    Second, the Bureau's prior interpretation was informed by the fact 
that Congress conferred authority on the Bureau to enforce the MLA 
through subtitle E of the CFPA, by incorporating TILA's enforcement 
scheme, without specifically addressing the Bureau's supervisory 
authority under section 1024. According to this line of argument, this 
specific conferral of certain enforcement authorities implies an 
unstated exclusion of supervisory authority. But the Supreme Court has 
rejected just such an argument. The Court has recognized that where 
financial regulators have formal enforcement powers regarding a 
specific subject but also ``broad statutory authority to supervise 
financial institutions,'' there is nothing that prevents ``the 
regulators from invoking less formal means of supervision of financial 
institutions,'' given that there is ``no prohibition against the use of 
supervisory mechanisms not specifically set forth in statute or 
regulation.'' \43\ This is particularly true here, where Congress has 
expressly authorized the Bureau to rely upon ``any other applicable 
authorities available to'' the Bureau to enforce the MLA, and where 
TILA's enforcement regime likewise authorizes the Bureau to exercise 
``any other authority conferred on it by law'' to aid in its 
enforcement of that statute.\44\ Thus, there is no reason to infer that 
Congress's conferral of certain specific enforcement authorities 
foreclosed the use of other authorities to ensure conformity with the 
MLA and securing its protections for servicemembers and their families. 
Moreover, when Congress incorporated TILA's enforcement scheme into the 
MLA in 2013, there had been forty years of consistent history of 
regulators taking this kind of approach in the TILA context--using 
their generally-framed authorities to examine supervised institutions 
in order to supplement the formal enforcement measures that section 108 
of TILA specifically references.
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    \43\ United States v. Gaubert, 499 U.S. 315, 319-20, 329-30 
(1991).
    \44\ 10 U.S.C. 987(f)(6); 15 U.S.C. 1607(b).
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    Third, the Bureau's prior interpretation was influenced by a 
concern that reading the phrase ``risks to consumers'' in sections 
1024(b)(1)(C) to include those risks to consumers that arise from 
conduct that violates the MLA might lead to a similar reading with 
respect to other statutes that, like the MLA, are not covered by 
sections 1024(b)(1)(A). But, as already explained, there is nothing in 
the statutory text to suggest that ``risks to consumers'' are somehow 
limited to conduct that is lawful and that ``risks to consumers'' can 
never include conduct that violates the law. It is also appropriate to 
step back and recognize that this is a ``slippery slope'' argument. 
``Like all slippery-slope arguments, the . . . point can be inverted 
with equal logical force.'' \45\ Not exercising the Bureau's authority 
to identify these important risks to active-duty servicemembers and 
their families would be a slippery slope towards making the authority 
that Congress expressly conferred on the Bureau, to seek out ``risks to 
consumers,'' a dead letter. As discussed above, the Bureau believes 
that the very harmful conduct that Congress sought to prevent in the 
MLA, which the Bureau has the authority to remedy through its other 
authorities (specifically enforcement action), sits within the core of 
this authority. There could doubtless be debate about the outer limits 
of the authority, but that is simply because Congress chose to frame it 
in such flexible terms, and that is not a reason for the Bureau to 
boycott this core application of the authority.
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    \45\ B.H. ex rel. Hawk v. Easton Area Sch. Dist., 725 F.3d 293, 
317 (3d Cir. 2013).
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    The Bureau would note, in conclusion, that a common feature of the 
above arguments against the Bureau's authority is that they do not 
dispute the plain fact that conduct that violates the MLA presents 
risks to consumers. Instead, the arguments all implicitly rely on 
variations of a mistaken premise: that Congress could not have meant 
what it said when it used the words ``risks to consumers'' to confer 
examination authority on a consumer protection agency in the aftermath 
of a financial crisis. But it is ``a fundamental principle of statutory 
interpretation that absent provisions cannot be supplied by the courts. 
This principle applies not only to adding terms not found in the 
statute, but also to imposing limits on an agency's discretion that are 
not supported by the text.'' \46\
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    \46\ Little Sisters of the Poor Saints Peter & Paul Home v. 
Pennsylvania, 140 S. Ct. 2367, 2381 (2020) (Thomas, J.) (internal 
citations, brackets, and quotation marks omitted).
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IV. Analysis of Section 1025(b)(1)(C) (Very Large Banks and Credit 
Unions)

    Section 1025(b)(1)(C) of the CFPA authorizes the Bureau, in 
relevant part, to conduct examinations of very large banks and credit 
unions for purposes of detecting and assessing ``risks to consumers'' 
that are ``associated'' with ``activities subject to'' Federal consumer 
financial laws. This requirement that there be an association with 
activities subject to Federal consumer financial laws is present in 
section 1025(b)(1)(C) but not section 1024(b)(1)(C), which narrows 
section 1025(b)(1)(C) in comparison to section 1024(b)(1)(C). The 
Bureau previously assumed that MLA-related issues could not be 
``associated'' risks to consumers under section 1025(b)(1)(C). But as 
explained above, the activity of extending ``consumer credit'' under 
the MLA is a subset of the activity of extending ``consumer credit'' 
under TILA. Indeed, violations of the MLA can overlap with violations 
of TILA's disclosure requirements, as well as the CFPA's prohibition on 
deceptive acts or practices or other violations of Federal

[[Page 32728]]

consumer financial law. The analysis under section 1025(b)(1)(C) of the 
CFPA is otherwise similar to that under section 1024(b)(1)(C) of the 
CFPA, and so there is no need to repeat it here.\47\
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    \47\ The Bureau's previous concerns that it lacked authority 
under section 1024(b)(1)(C) were also applicable to section 
1025(b)(1)(C). But for the reasons already discussed in the context 
of section 1024(b)(1)(C), the Bureau no longer finds those arguments 
persuasive.
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    The Bureau recognizes the role of the prudential regulators in 
conducting MLA supervision, including examinations, at very large banks 
and credit unions. Applicable statutes grant the prudential regulators 
broad supervisory and examination powers, which they use for various 
purposes, including assuring the safety and soundness of supervised 
institutions, assuring compliance with laws and regulations at those 
institutions, and other purposes. By contrast, the Bureau's authority 
under section 1025(b)(1)(C) concerns a targeted purpose: Detecting and 
assessing those ``risks to consumers'' that are ``associated'' with 
``activities subject to'' Federal consumer financial laws, such as 
TILA. Conducting examinations for that particular purpose is distinct 
from the prudential regulators' authority to conduct examinations for 
the purpose of assessing compliance with the MLA (or for safety and 
soundness or other purposes) --including the fact that the prudential 
regulators' purposes are not based on the association with Federal 
consumer financial law discussed above. Even though some of the 
activities in Bureau examinations may be similar to activities in 
prudential regulators' examinations, they are for a different purpose. 
Nothing in the CFPA or in this interpretive rule limits in any way, or 
should be deemed to limit in any way, the prudential regulators' 
consumer compliance examinations of very large banks or credit unions, 
or their subsidiaries, for the purpose of assessing compliance with the 
MLA.
    Section 1025 has a number of provisions that promote coordination 
and efficiency among the Bureau and the prudential regulators. The 
agencies work with each other to minimize regulatory burden that may 
result from their complementary authorities, while ensuring the 
efficient and effective protection of covered borrowers.

V. Regulatory Matters

    This is an interpretive rule issued under the Bureau's authority to 
interpret the CFPA, including under section 1022(b)(1) of CFPA, which 
authorizes guidance as may be necessary or appropriate to enable the 
Bureau to administer and carry out the purposes and objectives of 
Federal consumer financial laws, such as the CFPA.\48\
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    \48\ 12 U.S.C. 5512(b)(1).
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    As an interpretive rule, this rule is exempt from the notice-and-
comment rulemaking requirements of the Administrative Procedure 
Act.\49\ Because no notice of proposed rulemaking is required, the 
Regulatory Flexibility Act does not require an initial or final 
regulatory flexibility analysis.\50\ The Bureau has also determined 
that this interpretive rule does not impose any new or revise any 
existing recordkeeping, reporting, or disclosure requirements on 
covered entities or members of the public that would be collections of 
information requiring approval by the Office of Management and Budget 
under the Paperwork Reduction Act.\51\
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    \49\ 5 U.S.C. 553(b).
    \50\ 5 U.S.C. 603(a), 604(a).
    \51\ 44 U.S.C. 3501-3521.
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    Pursuant to the Congressional Review Act,\52\ the Bureau will 
submit a report containing this interpretive rule and other required 
information to the United States Senate, the United States House of 
Representatives, and the Comptroller General of the United States prior 
to the rule's published effective date. The Office of Information and 
Regulatory Affairs has designated this interpretive rule as not a 
``major rule'' as defined by 5 U.S.C. 804(2).
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    \52\ 5 U.S.C. 801 et seq.

    Dated: June 16, 2021.
David Uejio,
Acting Director, Bureau of Consumer Financial Protection.
[FR Doc. 2021-13074 Filed 6-22-21; 8:45 am]
BILLING CODE 4810-AM-P


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