The Military Lending Act – What You Need to Know
If the MLA isn’t top of mind with your institution, it needs to be front and center on your compliance checklist.
As many of you are aware, Congress passed the Military Lending Act (MLA) in 2006 providing specific protections for all active duty service members and their dependents in consumer credit transactions. The Department of Defense (DOD) published a Final Rule in July 2015 to amend its regulation implementing the MLA, significantly expanding the scope of the existing protections. The new rule became effective on October 1, 2015, and compliance is required by October 3, 2016. Compliance, however, with the rules for credit cards is delayed until October 3, 2017.
According to the DOD, these changes are, in part, intended to address short-term, small dollar lenders that avoided MLA restrictions by offering slightly modified loan terms that fall outside the Act’s scope. However, the new rules extend well beyond small dollar loan products.
What You Should Know
This new rule addresses a range of credit products that previously was outside the scope of the regulation. The MLA now encompasses new types of creditors and credit products, including credit cards. Loans covered under the ACT include:
- Certain payday loans
- Vehicle title loans
- Tax Refund Anticipation Loans (RALs)
- Deposit advance loans
- Unsecured open-end lines of credit
- Credit cards (Effective October 2017)
Under the new DOD rule, creditors are granted a safe harbor if they use the MLA database maintained by the DOD or consumer reports from a nationwide consumer credit reporting agency to verify the borrower’s status and comply with the recordkeeping requirements. Creditors are allowed to rely on the initial “covered borrower” check for up to 60 days after a firm offer of credit is extended to the borrower.
To stay at the forefront of the Military Lending Act, CU Direct is working closely with our industry partners, as well as lenders, legal counsel and staff. And, based on the knowledge we have gained through these valued relationships and their insights, we are taking a fresh look at our platforms to ensure we are making the necessary adjustments to comply with the MLA.
As a result, we are developing a number of important new features to our systems, including the following:
- Lending 360 System Enhancements
- OnSpot Disclosures
CU Direct will also be providing our credit union partners with additional training on our system updates and process changes as a result of the MLA amendments. Stay tuned for more information on training session dates and times.
In closing, the revised MLA rules reflect an ongoing compliance trend—a strong emphasis from the federal government to provide protections to active duty service members. The CFPB has signaled that compliance with the Act would be a key emphasis for the Bureau, which has primary enforcement authority. Needless to say, are you prepared for MLA?