The Department of Defense (DOD) issued a final rule in July 2015 to significantly expand the scope of its regulations that implements the Military Loans Act, which imposes certain disclosures and places restrictions on the terms of credit agreements. covered. Previously, the Military Lending Act only applied to three restricted types of credit: (1) payday loans with a term of 91 days or less and an amount of $ 2,000 or less; (2) vehicle title loans with a term of 181 days or less; and (3) tax refund anticipation loans.
Consumer credit covered by the rule
The scope of the regulation has been broadened to cover essentially all consumer credit, with four important exceptions: residential mortgages, cash credit secured by a motor vehicle, cash credit secured by property furniture and credit exempt from Regulation Z. types of credit effectively covered by the regulation now include unsecured loans, vehicle refinancing loans, unsecured lines of credit, overdraft lines of credit, consolidation loans debt and private student loans.
Borrowers subject to the rule
Not all consumers are covered by the military loan law. Borrowers covered include military members on active duty when credit is extended, and dependents of military members who are on active duty when credit is extended. “Dependents” generally include the member’s spouse, children, and certain individuals who depend on the member for more than 50% of their support and who reside in the member’s household.
How will you know if a member is covered by the Act? The DOD Final Rule grants safe-haven status to credit unions that review information in a consumer report on the applicant obtained from a national consumer information agency, or information obtained from the database. MLA online data collection from DOD. The credit union must also record the information obtained in order to ensure safe-haven status.
Disclosure and contractual requirements
The July 2015 DOD Final Rule requires credit unions to provide covered borrowers with a statement regarding the Military Annual Percentage Rate (MAPR) and certain oral disclosures. The rule also imposes a 36% limit on the MAPR for covered transactions. The MAPR is calculated in the same way that the traditional APR is calculated under Regulation Z, but additional charges are included when calculating the MAPR. For this reason, the APR and MAPR for a given transaction may not be the same. For closed loans, the MAPR must be calculated at the time of granting the credit. For open-ended credit, the MAPR must be calculated at each billing cycle to ensure that the 36% limit is not exceeded.
The following conditions may not be included in a loan agreement covered by mutual legal assistance: prepayment penalty, compulsory arbitration, waivers of consumer protection laws, compulsory military allowances to repay the extension of credit and general security on all actions of the member. The regulation allows creditors to be interested only in shares that are deposited after the extension of the credit and deposited in an account opened as part of the consumer credit transaction.
Mandatory compliance dates
Compliance with the July 2015 final rule is required on October 3, 2016, with the exception of credit card accounts, for which compliance is required on October 3, 2017. The final rule does not apply to credits granted before these dates.
Now that we have received our marching orders from the DOD, we can comply with the new requirements. CUNA Mutual Group has prepared resources to help you comply, including recorded webinars and frequently asked questions and answers regarding the rule, which can be found at: www.cunamutual.com/MLA. Additionally, the LOANLINER® consumer loan document portfolio has been expanded to include military loan law compliant documents.