WASHINGTON (9/29/14)--The U.S. Department of Defense's (DOD) announcement of a proposed overhaul of the Military Lending Act could affect credit unions that serve military members and families, raising concerns from the Credit Union National Association.
The proposed changes, announced Friday, would:
CUNA and Defense Credit Union Council (DCUC) staff will review the proposal in detail in the coming days. They will also reach out to credit unions and leagues to help develop a comment letter to the DOD.
In August 2013, CUNA and DCUC submitted a comment letter to the DOD regarding consumer credit extended to servicemembers and their dependents. In the letter, the organizations expressed their support for the existing DOD rule on consumer credit.
National Credit Union Administration Chair Debbie Matz said the NCUA, which finalized a payday lending alternative rule in 2010, considered how the rule would fit with existing DOD regulations.
"The Defense Department's new proposed rule would broaden the definition of 'consumer credit' under Military Lending Act regulations in a way that would prevent federal credit unions from making payday alternative loans permitted by our rule," she said.
Current NCUA regulations allow federal credit unions to offer payday alternative loans with an interest rate of up to 28% and an application fee of up to $20. Under Military Lending Act regulations, consumer credit to covered borrowers is subject to a 36% cap on the military APR, which includes application fees.
The Defense Department's proposed rule would cover other types of consumer credit as well, including credit card accounts and lines of credit tied to a checking account with a finance charge. As with payday alternative loans, the combined interest rates and fees for these products could not exceed the 36% military APR cap, even if the interest rate is below the general 18% interest rate cap for federal credit unions.
Approximately 500 federal credit unions offer payday alternative loans. Systemwide, these federal credit unions have about $23 million in outstanding loans, with an average loan balance of $382, according to the NCUA.
The DOD is accepting comments for 60 days after today, upon being published in the Federal Register.
Use the resource link below to access the proposed rule, and the CUNA/DCUC comment letter.