Military Lending Act: DoD Final Rule

MLA 2015 Amendment

Expansion of Consumer Credit Products Covered by MLA

General Provisions

The Final Rule broadens the definition of consumer credit to include credit card products. The Department of Defense now requires all lenders to act in accordance with the MLA law, regardless of the type of loan product. Covered borrowers (active duty members and their families) are free to apply for any credit product and receive the same MLA protections.

"Providing a temporary exemption for credit extended in a credit card account under an open-end (not home-secured) consumer credit plan. The exemption for a credit card account expires, at minimum, in October 2017, and the rule permits that exemption to be extended for up to one year;"

"Providing a qualified exclusion from the requirements relating to the computation of the MAPR for a credit card account for a "bona fide" fee, but eliminating the proposed condition that the bona fide fee be "customary." Under the final rule, an application fee, participation fee, transaction-based fee, or similar fee (other than a periodic rate) for a charge may be excluded from the MAPR to the extent that the fee is (i) a bona fide fee and (ii) reasonable for that type of fee;"

"Permitting a creditor, until October 3, 2016, to continue to use the method described in the existing rule for conducting a covered-borrower check, which involves the use of a covered borrower identification statement, as a safe harbor for compliance. After October 3, 2016, a creditor seeking a safe harbor for compliance with the rule may elect to use either of the new methods for conducting a covered-borrower check (and keep a record accordingly) set forth in § 232.5(b)"

Types of Credit

The DoD's Final Rule closed a loophole payday lenders were using to exploit covered members. Payday lenders found a way to redefine themselves so they were no longer required to follow the MLA regulations. Once the Final Rule is implemented in October 2016, all credit products will be covered, including vehicle title loans, refund anticipation loans, deposit advance loans, payday loans, unsecured open-end lines of credit, credit cards, and installment loans.

"For the purposes of assessing the amounts involved in the transfer payments, the Department has considered estimates of the current cost of credit and usage rates for four types of consumer credit, namely: (i)Credit card products, (ii) payday loans, (iii) auto title loans, and (iv) installment loans."

Creditor Regulations:

The military annual percentage rate must be 36 percent or below for every loan and credit product. Also, the creditor is required to provide the covered member an oral and hard copy of the terms and conditions before the borrower is bound to the creditor's terms.

"When extending consumer credit, the creditor must satisfy certain other terms and conditions, such as providing certain information (e.g., a statement of the MAPR), both orally and in a form the borrower can keep, before or at the time the borrower becomes obligated on the transaction or establishes the account, refraining from requiring the borrower to submit to arbitration in the case of a dispute involving the consumer credit, and refraining from charging a penalty fee if the borrower prepays all or part of the consumer credit (collectively, 'other MLA conditions')."

"The MLA limits the amount of interest that a creditor may charge on 'consumer credit' to a maximum annual percentage rate of 36 percent. The Department amends its regulation primarily for the purpose of extending the protections of the MLA to a broader range of closed-end and open-end credit products."

Date of Implementation:

For most credit services and products, the Final Rule is to become law on October 3, 2016.

"FDIC supervised institutions and other creditors must comply with the rule for new covered transactions beginning October 3, 2016. For credit extended in a new credit card account under an open-end consumer credit plan, compliance is required beginning October 3, 2017."

To understand all your rights covered under the MLA, review the complete act, which is available online and is free to access:

Military Lending Act