The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) highlighted their efforts to aggressively enforce provisions of the Military Lending Act (MLA) in a recently issued press release and testimony before Congress. The FTC — along with 18 states — announced it had brought its first-ever case, alleging violations of the MLA against Harris Jewelry, while the CFPB touted its actions against businesses that violated the MLA by forcing servicemembers to repay loans by allotment or by charging interest rates that exceeded the 36% MLA maximum.

Harris Jewelry Settlement

In the press release announcing the settlement, the FTC, along with the states that joined in the enforcement action, accused Harris Jewelry of using “shady practices” against servicemembers. Harris Jewelry has nationwide locations located just outside of military bases and sometimes collocated on the bases themselves, allowing it to target servicemembers. According to the FTC, Harris Jewelry failed to comply with the MLA by not disclosing required information, such as a statement of the military annual percentage rate. Harris Jewelry was also alleged to have made unsupported claims to servicemembers, including statements that servicemembers could improve their credit scores by financing their purchases, using credit provided by Harris Jewelry. Additionally, Harris Jewelry was accused of tacking on purchase protection plans, using sales tactics the FTC described as misrepresentation.

As part of the settlement, Harris Jewelry must stop the alleged deceptive practices, provide refunds for the purchase protections plans, stop debt collection from servicemembers, and request consumer reporting agencies to remove negative credit entries. Furthermore, Harris Jewelry must pay $1 million to the states for law enforcement and education efforts and, after complying with all of the settlement terms, shut down and dissolve its operations.

CFPB Enforcement Actions

Testifying before the House Committee on Oversight and Reform Subcommittee on National Security, Assistant Director of the Office of Servicemember Affairs Jim Day highlighted the CFPB’s efforts to take action against businesses that violate the MLA. Over the past year and half, these efforts have included:

  • Issuing a consent order against Omni Financial of Nevada, Inc. for requiring servicemembers to repay loans by allotments, a violation of the MLA.
  • Suing LendUp in late December 2020 for charging interest rates that exceeded the MLA’s 36% cap. This suit later resulted in a stipulated judgment that the CFPB sued LendUp for violating in early 2021. This led to a second stipulated judgement that prohibits LendUp from making new loans or collecting on outstanding loans.

Why These Enforcement Actions Are Noteworthy

As noted by Malini Mithal of the FTC Bureau of Consumer Protection in testimony accompanying the CFPB’s testimony, “Military frauds cause great harm to individual victims and their families, and undermine military readiness and troop morale.” Businesses occasionally target servicemembers because they know military members have guaranteed paychecks, and their failure to repay loans can result in negative administrative action and potentially criminal penalties under the Uniform Code of Military Justice. Additionally, as many servicemembers are young men and women frequently stationed far from home, they may not be savvy consumers and can be ripe for deceptive sales tactics. As a result, both the FTC and CFPB pledged to Congress that they would ensure these servicemembers received the protections guaranteed to them under the MLA.

We’re Here to Help

Our clients are reminded of the broad protections our servicemembers have earned through their volunteer service, and they are encouraged to seek assistance if there are questions about how to best implement these rights. Troutman Pepper’s military lending practice includes one of the oldest and most well-respected consumer financial services and regulatory practices in the U.S. Let us help you ensure our military members are being rewarded for their valuable service to our nation.