Final Rule Summary

Military Lending Act/Department of Defense

Prepared by NASCUS Legislative & Regulatory Affairs Department
September, 2015

The Department of Defense (DOD) has amended the Military Lending Act (MLA), its regulation that provides certain consumer protections for Service members and their families. The MLA limits the amount of interest that a creditor may charge on ‘‘consumer credit’’ to a maximum annual percentage rate of 36%. With this amended final rule, the DOD has extended the MLA protections to a broader range of closed-end and open-end credit products, modified the provisions relating to the optional mechanism a creditor could use to identify a ‘‘covered borrower,’’ modified the required disclosures, and implemented enforcement provisions.

The final rule is effective on October 1, 2015. Compliance required by October 3, 2016. The provisions related to credit cards is effective October 3, 2017.

The new final rule will become effective Oct. 1, 2015. Compliance will be required by Oct. 3, 2016.

The final MLA rule may be accessed here.

Summary

  • Expanded Scope - The MLA had traditionally applied to three kinds of loan products: payday loans, vehicle title loans, and refund anticipation loans. Now, the MLA will apply to products generally covered by the truth in Lending Act and Regulation Z, including deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards. The scope is defined as Credit offered or extended to a covered borrower primarily for 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.

  • Disclosures – creditors are required to provide covered persons with disclosures informing them of their rights under the MLA.
  • Covered person – a member of the military or their dependents. A borrower loses their coverage as soon as they cease to meet the criteria (ie no longer military). Under the final rule, creditors are granted a safe harbor in identifying a covered person if they use either:
    1. the MLA database (maintained by the DOD)
    2. consumer reports from a nationwide consumer credit reporting
  • 36% Annual Percentage Rate limit – the MLA establishes a cap on interest that may be charged service members and their families, the Military Annual Percentage Rate (MAPR). The MAPR covers all interest and fees associated with the loan, including add-on products such as credit default insurance, debt suspension plans, credit insurance premiums, debt cancellation fees, and certain application and annual fees.

  • Dispute Resolution - The MLA prohibits creditors from requiring service members to submit to mandatory arbitration, waive their rights under the service members’ Civil Relief Act, or provide a payroll allotment as a condition of obtaining credit.

  • Rolling Over, Renewing/Refinancing Consumer Credit - The MLA prohibits all rollovers, renewals or refinances of payday loan transactions or other deferred presentment transactions by creditors other than banks, thrifts or credit unions.
  • Enforcement – The MLA subjects creditors to civil liability and administrative enforcement for rule violations.