As questions continue to arise regarding the changes to the Military Lending Act (MLA), CUNA is not only submitting guidance language at the Department of Defense’s (DOD) request, but also answering questions from credit unions.
In a recent entry, CUNA was asked if prior to establishing a loan, credit unions need to check the name of every loan applicant to determine whether the applicant is on active duty in the armed forces or is a spouse or dependent of an active duty member of the armed forces.
The answer? Yes, the name of every loan applicant should be checked to determine whether the loan will be subject to the DOD’s MLA regulations.
Without this check, a credit union might not realize a particular applicant is on activeduty, or a dependent of the active duty member, and make a loan that is not in compliance with the MLA regulations.
The rule permits a credit union to use any method of determining whether a person is considered a covered borrower. However, it only provides two “safe harbor” methods” to determine active-duty status.
The safe harbor that previously permitted a credit union to rely on an applicant’s declaration, in the loan application or elsewhere, has been eliminated.
So while accessing the MLA database or a consumer reporting agency to determine military status is optional, relying on any other method to make the determination would not be covered by the safe harbor, risking potential violation of the MLA regulation as well as significant penalties.