Military Lending Act implementation: Determining covered borrower status

As previously discussed on The Works Blog both here and here, last summer the Department of Defense (“DOD”) finalized sweeping changes to the Military Lending Act (“MLA”) that take effect this coming October. As a refresher, the MLA prohibits a credit union from charging a covered borrower an MAPR in excess of 36%. This MAPR cap applies to “covered borrowers” on most extensions of consumer credit.

A frequent question we receive from credit unions regarding MLA implementation is how to determine whether an applicant is a “covered borrower.” The MLA gives your institution some discretion as to how you go about making this determination; however, it provides you with two safe harbors. The first is to check the applicant against the DOD’s manpower database which is available here. The second is to rely on an indicator of active duty status as it appears on the applicant’s consumer credit report.

Generally, an active duty status indicator is placed on the borrower’s consumer credit report upon their request. It remains on the report for a period of one year and may be extended for an additional year should the servicemember’s active duty service be continuing. However, since publication of the MLA amendments the three major credit reporting agencies (Equifax, Experian and TransUnion) have been working on a system to directly connect with the DOD’s manpower database. This would allow the active duty status indicator to automatically populate to the borrower’s report and make the process of determining “covered borrower” status much more efficient for your credit union.

Here is an update as to where each of the three major bureaus are in the implementation process:

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