The Expanded Military Lending Act Regulations
The Military Lending Act’s (“MLA”) lending restrictions are expanded to apply to consumer credit card issuers and unsecured consumer lenders. Compliance in most areas was mandatory as of October 3, 2016, but as to credit cards the mandatory compliance date is October 3, 2017. This results from the July 21, 2015 Department of Defense (“DoD”) final rule amending the Military Lending Act’s regulations. Included are depository institutions not previously subject to the regulations. Compliance with the expanded regulations require adjustments to financial products offered to military members and their families.
The Act and its Amendments
The Military Lending Act, 10 U.S.C. § 987, originally became effective on October 1, 2007. It has been amended twice in 2013 and 2015. The MLA was designed to deter loans that charged excessive fees and interest rates, disregarded a borrower’s ability to repay, or those that established unrealistic payment schedules. It prohibits the securing of loans with checks, electronic access to bank accounts, vehicle titles or allotment of military pay.
The MLA applies to active-duty military personnel, active Reserve and National Guard personnel serving on Title 10 orders, and their dependents with a valid military identification card. There is an active duty requirement, which means serving under a call or order of more than 30 days. Dependents are defined as those who individual who get over half support for 180 days immediately preceding an extension of credit. It does not cover retirees, unless they are also dependents of a covered borrower. The definition of “dependent” was expanded to achieve consistency with how that term is used for determining eligibility for medical care. Cf. 10 U.S.C. § 1072. As a result, same-sex spouses and certain unremarried former spouses may be covered.
The MLA’s restrictions only apply to accounts opened while the service member or dependent is eligible, and the MLA’s protections end when the consumer is no longer covered under the MLA. Lenders must use standard loan application language to determine if borrowers are covered servicemembers or dependents. Lenders can query a DoD database to verify active-duty status: https://mla.dmdc.osd.mil/; see alsohttps://www.dmdc.osd.mil/appj/scra/.
Covered Subject Matter
The most recent amendment extends the protections of the MLA to a broader range of closed-end and open-end credit products. Now, nearly all credit products fall under the MLA with few exceptions. The revised its definition of “consumer credit” to now encompass credit offered or extended to a covered borrower for primarily personal, family, or household purposes, and that is (i) subject to a finance charge or (ii) payable by a written agreement in more than four installments. 12 C.F.R. 1026.1(c)(1)(iii). Credit cards and student loans are included as well as installment loans, vehicle title loans, payday loans, refund anticipation loans, deposit advance loans and open-end lines of credit. Exceptions are home purchase or refinance loans and auto loans secured by the purchased vehicle. However, the refinancing of an automobile loan is not exempt. A loan to buy personal property when the loan is secured by that property, is exempt.
The most prominent feature of the MLA is that it set an inclusive 36% military annual percentage (“MAPR”) rate cap for loans made to covered servicemembers and their dependents. The MAPR is not the same as the interest rate on the loan, and it is also not the annual percentage rate disclosed pursuant to Regulation Z, which implements the Truth in Lending Act. The MAPR includes interest, fees, credit service charges, credit renewal charges, credit insurance premiums, and other fees assessed in connection with the loan. The regulations directing MAPR calculations are detailed, and credit cards have their own rules for assessing MAPR. For closed-end credit, the MAPR will be calculated at the time the loan is made or before. For open-ended credit agreements, the MAPR will be calculated with each billing cycle.
It is required that finance charges under Regulation Z and other charges covered as interest under the MLA be included in the 36% MAPR. Even if they would not be considered finance charges under Regulation Z, certain chares are required to be included in the MAPR. These include application, participation and annual fees as well as credit insurance premiums and fees for debt cancellation or debt suspension agreements. Also to be included are fees for credit-related ancillary products sold in connection with the credit transaction or account.
A credit agreement prohibited under the MLA is void from inception. Covered borrowers can recover damages from creditors regulatory oversight comes from Section 108 Truth in Lending Act enforcement authority agencies. See 15 U.S.C. § 1601; 12 C.F.R. 226. There has been at least one class action certified under the MLA against automobile title loan companies on the basis of requiring interest in excess of the MAPR. Furthermore, the MLA authorizes government agencies to enforce the requirements of the MLA using restitution and administrative penalties ranging from $5000 per day to $25,000 per day to $1,000,0000 per day for first, second and third tier violations, respectively. While a majority of states permit payday lending, a few, including Illinois, also authorize state regulators to enforce the MLA. 815 ILCS 122/2-51.