Department News COMPLIANCE
Military Lending Act Refesher By Carol Barnett, Senior Vice President of Compliance Services
This article highlights the key requirements of the U.S. which banks and other creditors were required to comply with in October 2016. Te Consumer Financial Protection Bureau has highlighted lending to military members as a supervisory priority and has brought several enforcement actions against lenders for violations.
Overview: Te primary keys to compliance are determining “covered borrowers” and “consumer credit” for purposes of the regulation. Loans to a covered borrower that are covered by the rule have many restrictions.
Consumer Credit: Although “consumer credit” largely mirrors the definitions used in Regulation Z, there are some primary exceptions under the MLA rule. loans secured by a dwelling (including purchase, construction, refinance and home equity loans or lines of credit)
loans “expressly” to purchase a motor vehicle or personal property, secured by the vehicle or property being purchased other loans not subject to Regulation Z
Covered Borrowers: A covered borrower might be a “covered member” — a member of the Armed Forces serving on active duty, including active Guard and Reserve duty. A covered borrower also can be a spouse or a dependent of a covered member. A dependent is a person who relies on the covered member for more than one-half of his or her support and can include a child, parent or parent-in-law, or other person in the legal custody of a covered member.
Identifying Covered Borrowers: Banks must identify whether a person is a covered borrower at the time the credit is
extended. To receive a “safe harbor” for complying with the rule, the bank must verify the status of borrowers by using either information obtained from the DOD MLA database website or from a consumer report issued by a national consumer reporting agency (Equifax, TransUnion, Experian) and maintain a record of the information.
Limits on Covered Loans: If the bank makes a covered loan to a covered borrower, the Military Annual Percentage Rate for that loan cannot exceed 36 percent — which is not the interest rate and not the traditional APR. Additional charges beyond typical finance charges are included in the calculation of the MAPR, including credit insurance premiums. In addition, there are other prohibited contract terms.
Additional Disclosure: Detailed written and oral disclosures must be provided to covered borrowers on covered loans, with specific timing requirements.
Penalties: Te law and regulation include severe consequences for violations, including criminal and civil penalties, and the voidance of the contract.
Relationship to SCRA: Te MLA is separate from the Servicemembers Civil Relief Act. Tey serve different purposes, and the DOD maintains a separate MLA database and a separate SCRA database, which are not interchangeable.
Te federal bank regulatory agencies examine banks for compliance with the MLA regulations.
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