Regulatory Alert Summary

Prepared by NASCUS Regulatory Affairs Department
November, 2015

15-RA-04 Regulatory Changes Affecting Military Members
October 2015

NCUA’s Regulatory Alert 15-RA-04 addresses the recent Military Lending Act final rule issued by the Department of Defense (DOD). The Military Lending Act (MLA) is designed to protect military service members by applying to two broad requirements to creditors:

  • The creditor may not impose a Military Annual Percentage Rate (“MAPR”) greater than 36% in connection with an extension of consumer credit to a covered borrower.
  • When extending consumer credit, the creditor must satisfy certain other terms and conditions, including specific disclosures, prohibiti0ns on mandatory arbitration, and prohibitions on prepayment penalties.

A NASCUS summary of the final MLA rule may be read here.

PALs Program
NCUA had lobbied DOD for an exemption from the rule for NCUA’s payday alternative loan (PALs) program. As a result, the final rule permits credit unions making PALs in accordance with NCUA’s regulation to exclude one application fee in a rolling 12-month period from the military annual percentage rate (MAPR).  This allows credit unions to charge an application fee on origination of a PALs. The proposed rule had limited loans to 36% APR including application fees.

More Products Brought Within MLA Protections 
Prior to the changes of the new final rule, the MLA only applied to payday loans, vehicle title loans and tax refund anticipation loans. The new final rule expands the 36% MAPR limit to cover most non-mortgage-related consumer credit transactions under the Truth in Lending Act (TILA) and Regulation Z, such as, credit card accounts and installment loans.

Calculating the APR
The Final Rule also changes how the MAPR is calculated.  For most loans (other than the first PAL in a rolling 12-month period), an application fee counts in calculating the MAPR.  This is the case even though the application fee would not count in calculating the APR under Regulation Z. When calculating the MAPR, creditors must include:

  • Credit Insurance Premium or Fee
  • Debt Cancellation or Debt Suspension Fee
  • Fees for Ancillary Products Sold in Connection with the Credit Transaction (e.g. Credit Default Insurance and Debt Suspension Plans)
  • Finance Charges
  • Application Fee

If there is no balance in a billing cycle, a creditor may not charge any fee except for a participation fee. The participation fee cannot exceed $100 per year regardless of the billing cycle in which the fee is imposed.

Other Changes
NCUA’s Regulatory Alert also noted the following additional changes made by the final rule:

  • Adjusts the safe harbor for determining and documenting who is a covered borrower; 
  • Amends disclosure requirements and provides model disclosure language; 
  • Amends provisions prohibiting certain contract terms, including exemptions from certain provisions for credit unions; 
  • Defines the penalties and civil remedies for violations; and 
  • Preempts state law in certain circumstances.

Effective Dates
The Final Rule is effective October 1, 2015, however, creditors have a 12 month transition period with compliance mandated on October 3, 2016. Compliance with the credit card account rules will begin October 3, 2017. 

Until October 3, 2016, credit unions making payday loans, vehicle title loans, or tax refund anticipation loans must continue to comply with the original regulation.