If you happen to find yourself with some downtime today, take a minute to familiarize yourself with the latest Regulatory Refresher!
This time around we will be giving an overview of the Military Lending Act.
Military Lending Act (MLA)
The Military Lending Act was enacted in 2006 and implemented by the Department of Defense (DOD). The purpose of MLA is to protect active duty military, their spouses, and their dependents (“covered borrowers”) from certain lending practices. A covered borrower is defined as 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 of the armed forces or a dependent of a covered member. MLA limits what can be charged to the covered borrower in interest, fees, and charges for credit insurance, debt cancellation and suspension, and other credit-related ancillary products sold in connection with the transaction, like GAP. The total of the charges is referred to as the Military Annual Percentage Rate (MAPR). The MAPR is capped at 36%.
Determining Covered Borrower Status:
To determine if a member is a covered borrower, the DOD’s database can be used to run a search of the member’s military status. The DOD’s database is located here. The borrower’s last name, date of birth, and Social Security number will be needed to run the search. This must be done at the time the borrower applies for the loan or 30 days PRIOR to that time.
There are certain mandatory disclosures pertaining to the Military Lending Act. These include:
- A statement of the MAPR applicable to the current loan. This statement does not need to include the numerical value of the MAPR. This requirement can be satisfied by describing the charges that may be imposed, in accordance with the regulation and subject to the terms and conditions of the agreement, relating to the consumer credit to calculate the MAPR.
- All disclosures currently required by Regulation Z still pertain.
- A description of the payment obligation of the covered borrower, as applicable.
The statement of MAPR and the clear description of the payment obligation must be provided in writing that the covered borrower can keep and orally. The oral disclosure can be satisfied in person at the time of the loan closing or through the use of a toll-free number. The toll-free number must provide the statement of MAPR, as well as, the description of the payment obligation. Because of this requirement, a generic statement of MAPR recording would not be sufficient. The description of the payment obligation needs to be specific to the covered borrower.
MLA does not apply to all loan types, so what consumer credit is not covered under the Final Rule?
The Final Rule does not apply to five categories of transactions:
- A residential mortgage secured by an interest in a dwelling;
- A transaction expressly for financing the purchase of a motor vehicle secured by the purchased vehicle;
- A transaction expressly for financing the purchase of personal property secured by the purchased property;
- Any credit transaction that is exempt for the purposes of Regulation Z or otherwise is not subject to disclosure requirements under Regulation Z; and
- The easiest one to remember, any transaction in which the borrower is not a covered borrower.
Below is a handy flow chart, provided by the FDIC, which you can follow to determine if MLA applies:
This is only a minimal overview of MLA. We encourage you to familiarize yourself with all the requirements of the Final Rule. If you have questions, contact CU Rx at firstname.lastname@example.org.
The full text of the Final Rule is available here.
The text of the regulation by itself is available here.
The text of the Military Lending Act is available here.