The Department of Defense (DOD) issued a final rule in July 2015 to greatly expand the scope of its regulation that implements the Military Lending Act, which mandates certain disclosures and places restrictions on contract terms for covered credit. Previously, the Military Lending Act applied only to three narrow types of credit: (1) payday loans with terms of 91 days or fewer and in amounts of $2,000 or less; (2) vehicle title loans with terms of 181 days or fewer; and (3) tax refund anticipation loans.
Consumer Credit Covered by the Rule
The scope of the regulation has been expanded to cover essentially all consumer credit, with four important exceptions: residential mortgages, purchase money credit secured by a motor vehicle, purchase money credit secured by personal property, and credit exempt from Regulation Z. Examples of the types of credit actually covered by the regulation now include unsecured loans, vehicle refinance loans, unsecured lines of credit, overdraft lines of credit, debt consolidation loans and private student loans.
Borrowers Covered by the Rule
Not all consumers are covered by the Military Lending Act. Covered borrowers include military members serving on active duty at the time credit is extended, and dependents of military members who are serving on active duty at the time credit is extended. “Dependents” generally include the military member’s spouse, children, and certain people who are dependent on the member for over 50% of their support and who reside in the military member’s household.
How will you know whether a member is covered by the Act? The DOD’s final rule provides safe harbor status to credit unions who review the information in a consumer report on the applicant obtained from a nationwide consumer reporting agency, or information obtained from DOD’s online MLA database. The credit union must also make a record of the information obtained in order to ensure safe harbor status.
Disclosure and Contract Requirements
The DOD’s July 2015 final rule requires credit unions to provide covered borrowers with a statement regarding the Military Annual Percentage Rate (MAPR), and certain oral disclosures. The rule also imposes a 36% limit on the MAPR for covered transactions. The MAPR is calculated in the same way the traditional APR is calculated under Regulation Z, but additional charges are included when calculating the MAPR. For this reason, the APR and MAPR for a given transaction may not be the same. For closed-end loans, the MAPR must be calculated at the time the extension of credit is made. For open-end credit, the MAPR must be calculated each billing cycle to ensure the 36% cap is not exceeded.
The following terms may not be included in an MLA-covered loan contract: a prepayment penalty, mandatory arbitration, waivers of consumer protection laws, mandatory military allotments to repay the extension of credit, and broad security interests in all of the member’s shares. The regulation allows creditors to take an interest only in the member’s shares that are deposited after the extension of credit is made, and deposited into an account opened in connection with the consumer credit transaction.
Mandatory Compliance Dates
Compliance with the July 2015 final rule is required on October 3, 2016, with the exception of credit card accounts, for which compliance is required on October 3, 2017. The final rule does not apply to credit extended before these dates.
Now that we have received our marching orders from the DOD, we can move toward compliance with the new requirements. CUNA Mutual Group has prepared resources to help you comply, including recorded webinars and frequently asked questions and answers regarding the rule, which may be found at: www.cunamutual.com/MLA. In addition, the LOANLINER® consumer lending document portfolio has been expanded to include documents that comply with the Military Lending Act.