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 www.pulshaney.com.
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.
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