Amendments to the Military Lending Act Will Affect More CU Products

Compliance with the act will be mandatory by October 2016.

September 18, 2015

Military Lending Act (MLA) protections will soon apply to many more credit union products.

The protections, which apply to active duty servicemembers and their dependents, will cover a new broad set of consumer credit products, says Michael R. Christians, a compliance attorney with PolicyWorks LLC.

“This is an important thing to get your head wrapped around,” Christians said during a recent CUNA webinar.

“It is a much broader definition of what constitutes consumer credit for purposes of the MLA.”

Previously, “narrow” parameters under the MLA applied only to payday loans, auto title loans, and tax refund anticipation loans.

The requirements of the MLA now extend to all credit granted for personal, family, or household purposes that is either:
Subject to a finance charge; or
Payable by a written agreement in more than four installments.

The MLA regulation will, however, continue to exclude residential mortgages and credit extended to finance the purchase of, and secured by, personal property, such as vehicle purchase loans.

The rule becomes effective Oct. 1, but compliance will not be mandatory until Oct. 3, 2016.

Additionally, the rule provides for a delay of the effective date for applicability of the MLA’s requirements to consumer credit extended to a covered borrower under a credit card account. The requirements will not apply until Oct. 3, 2017, at the earliest.

An extension of up to one additional year is possible, Christians says.

Who does the rule apply to?

The rule applies to a member of the armed forces on active duty, or active guard or reserve duty. It also applies to the dependents of covered members, such as a spouse, child, parent, or other unmarried person dependent upon the covered member for more than half of their support.

The member must have covered borrower status “at the time of the transaction is consummated.”

Determining active duty status is not as easy as you would think, Christians says, because three different definitions of active duty exist in federal law.

But credit unions can check a member’s active duty status by searching the Department of Defense manpower database or by looking for an active duty indicator on the borrower’s consumer credit report.

Noncompliance penalties

Credit unions face significant penalties for noncompliance with the MLA, Christians says, including:

• Voiding the underlying contractual obligation;
• Actual damages (of not less than $500);
• Appropriate punitive damages;
• Appropriate equitable or declaratory relief; and
• Costs associated with the action, including reasonable attorney’s fees.

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