On March 24, U.S. SDNY released its opinion and order granting dismissal, in part, with respect to counts two through five (and related claims under count six) in a case the CFPB brought against a loan company group (the defendants) in 2022, the Bureau alleged the defendants made loans to military borrowers that violated the Military Lending Act (MLA) and that the defendant’s lending practices violated the CFPA prohibition on UDAAPs. As previously covered by InfoBytes, the Bureau sued the defendants alleging they imposed excessive charges on loans to servicemembers and their dependents. On procedure, SDNY asked the Bureau in February to indicate its status in the case (covered here), to which the Bureau stated it will continue to pursue this case (covered here).

The CFPB’s first amended complaint included the following counts: Count one alleged violations of the MLA’s 36 percent military annual percentage rate (MAPR) cap; count two alleged violations of the MLA’s arbitration prohibition; count three alleged violations of the MLA’s prohibition on onerous legal notice provisions, which included, among other things, an onerous 30-day timeframe to reject arbitration; count four alleged violations of the MLA’s prohibition on unreasonable notice demands; count five alleged violations of the MLA’s disclosure requirements; count six alleged deceptive acts and practices under the CFPA; count seven alleged deceptive acts and practices relating to membership cancellation under the CFPA; count eight alleged unfair acts and practices relating to membership fees under the CFPA; and count nine alleged abusive acts and practices relating to membership-program loans under the CFPA.

The defendants moved to dismiss the Bureau’s first amended complaint for failure to state a claim, arguing, among other things, unconstitutional delegations of legislative authority and arbitrary and capricious treatment of participation fees as interest when calculating the interest cap. SDNY granted the defendants’ motion for counts two, three, four and five and portions of count six that depend on the same alleged violations, but otherwise denied the motion. The Bureau may amend its complaint by April 23 to resolve deficiencies only in respect to count five and portions of count six that depend on the same alleged violations. SDNY also lifted the stay of this case.

SDNY rejected the defendants’ arbitrary-or-capricious challenge to the Department of Defense’s (DoD) 2015 MLA Rule. SDNY concluded the first amended complaint stated a plausible claim for relief for counts one (that defendants issued loans to military borrowers that exceeded the 36 percent MAPR cap in the MLA and the DoD’s 2015 MLA Rule), seven through nine, and portions of count six related thereto, but not for counts two through five and portions of count six that rely on the same underlying violations in counts two through five. SDNY concluded the first amended complaint plausibly alleged the loans were made primarily for personal, family or household purposes.

The Bureau asked the court for leave to further amend its pleading to correct deficiencies, including through amplification of factual allegations. SDNY agreed that count five’s deficiencies could be fixed through additional factual allegations that clarify which disclosures the defendants allegedly failed to provide and the circumstances of such nondisclosure. Accordingly, SDNY granted the CFPB leave to amend its pleading for its nondisclosure allegations in count five and portions of count six based on that nondisclosure, but not for counts two, three and four.