Parker County Today November 2016 - Page 17

our law: COLUMN What is the New Military Lending Act and When Does it Apply? By Stephanie E. Kaiser Partner, Puls Haney Kaiser PLLC What does the MLA do? Under the MLA, the annual cost of credit cannot exceed a 36% MAPR (Military Annual Percentage Rate), creditors are required to provide certain disclosures specific to the military both orally and in writing, and creditors are prohibited from: (1) requiring a servicemember to submit a dispute to arbitration or submit to other burdensome legal notices, waive rights under federal or state law, demand unreasonable notice as a condition of legal action, provide a payroll allotment as a condition of credit, or use a vehicle title as security for a consumer credit obligation (as long as the lender is not a chartered or licensed bank, savings association, or credit union); (2) charging a pre-payment penalty; and (3) permitting a (a) refinance of a payday loan and (b) credit to be secured by a post-dated check. Creditors cannot rely on statements from applicants to know whether applicants are covered by the MLA; instead, creditors must develop a process for identifying such applicants. However, the MLA provides a safe harbor to creditors who rely on the Department of Defense’s MLA Database or active duty notifications provided by a consumer reporting agency on the consumer’s credit bureau report within the timeframes and parameters provided. There are penalties for non-compliance, so lenders should be sure to identify borrowers who are covered by the MLA before loans to such persons are made and develop procedures for compliance. Stephanie E. Kaiser frequently trains and advises lending institutions on various consumer protection laws and develops procedures for compliance with such laws. For additional information on Puls Haney Kaiser PllC, you may visit PA R K E R C O U N T Y T O D AY Who is covered by the MLA? The MLA’s new regulations apply only to a consumer who, at the time the consumer becomes obligated on a consumer credit transaction or establishes an account for consumer credit, is a “covered member” or a “dependent” of a covered member. A “covered member” is an armed forces member who is serving on (1) active duty under a call or order that does not specify a period of 30 days or fewer, or (2) an “Active Guard and Reserve Duty” as that term is defined. Generally speaking, a “dependent” of a covered member includes a covered member’s spouse and dependent children. NOVEMBER 2016 What is the MLA? In 2011, the Dodd-Frank Act established the Office of Servicemember Affairs as a part of the Consumer Finance Protection Bureau to enable servicemembers to make more informed decisions regarding certain extensions of credit. In July 2015, the Department of Defense issued the final rule to amend the regulations implementing the Military Lending Act (MLA). The new regulations went into effect on October 1, 2015 for covered credit transactions consummated on or after October 3, 2016 except for credit card transactions; credit card transactions must conform to the new rule by October 3, 2017. Initially, the MLA applied only to three narrowly-defined consumer credit transactions: (1) closed-end payday loans that did not exceed $2,000 with a term of 91 days or less; (2) closed-end auto title loans with a term of 181 days or less; and (3) closed-end tax refund anticipation loans. As a result of recent amendments, the rule now generally applies to consumer credit that is offered or extended to active-duty servicemembers or their dependents that is: (1) subject to a finance charge; or (2) is payable by written agreement in more than four installments. As a practical matter, the amended rule expands the MLA’s protection to all payday loans, vehicle title loans, tax refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards that fall within the definition of consumer credit. The amended rule expressly excludes loans secured by real estate and certain purchase money loans, including loans to finance a vehicle purchase, and loans exempt under Regulation Z. 15