Time to brush off those compliance plans and ensure you are prepared for the new regulations, specifically surrounding the Military Lending Act (MLA).
In July 2015, the Department of Defense (DOD) published a Final Rule to amend its regulation implementing the Military Lending Act, significantly expanding the scope of the existing protections. The new, beefed-up version encompasses new types of creditors and credit products, including credit cards. While the DOD was responsible for implementing the rule, enforcement will be led by the Consumer Financial Protection Bureau (CFPB).
The new rule took effect on October 1, 2015, and compliance was required by October 3, 2016. Compliance, however, with the rules for credit cards was delayed until October 3, 2017.
While there is no formal guidance yet on what federal regulators will look for in reviewing MLA compliance, there are some insights on the law.
Why was MLA enacted?
Initially implemented in 2007, the law was created to provide service members and their dependents with specific protections. These protections:
- Limited the APR (including fees) for covered products to 36 percent
- Required military-specific disclosures
- Prohibited creditors from requiring a service member to submit to arbitration in the event of a dispute
It initially applied to three narrowly-defined “consumer credit” products:
- Closed-end payday loans
- Closed-end auto title loans
- Closed-end tax refund anticipation loans
What are the latest regulations being applied to the original MLA implemented in 2007?
The new rule expands the definition of “consumer credit” covered by the regulation to more closely align with the definition of credit in the Truth in Lending Act and Regulation Z. This means MLA now covers a wide range of credit transactions, but it does not apply to residential mortgages and credit secured by personal property, such as vehicle purchase loans.
One of the most significant changes is the addition of fees paid “for a credit-related ancillary product sold in connection with the credit transaction.” Although the military annual percentage rate (MAPR) limit is 36 percent, ancillary product fees can add up and, especially for accounts that carry a low balance, can quickly exceed the MAPR limit.
The final rule also includes a “safe harbor” from liability for lenders who verify the MLA status of a consumer.
Under the new DOD rule, lenders will have to check each credit applicant to confirm that they are not a service member, spouse, or the dependent of a service member, through a nationwide CRA or the DOD’s database, known as the DMDC.
If you have inquiries about the new Military Lending Act regulations, feel free to email email@example.com or contact your CIC CREDIT Account Executive directly.