NCUA regulatory alert greets Oct. 1 MLA changes

October 5, 2015

ALEXANDRIA, Va. (10/5/15)--Federal credit unions can continue to make payday alternative loans (PALs) under changes to the Military Lending Act (MLA), which became effective Thursday. The National Credit Union Administration (NCUA) issued a regulatory alert (15-RA-04) last week addressing some of the changes.

“Although the final rule’s effective date is Oct. 1, 2015, credit unions generally have a year from the effective date of the Final Rule to comply with the new provisions for the types of ‘consumer credit’ covered only by the expanded definition under the final rule,” the letter reads. “The compliance date for most new provisions will be Oct. 3, 2016.  Compliance with the credit card account rules will begin Oct. 3, 2017.”

The U.S. Department of Defense (DOD) issued the final MLA rule in July. It expanded types of credit products that are covered by a 36% annual percentage rate (APR) cap. CUNA urged the NCUA to work with the DOD to ensure PALs could continue to be offered. NCUA Chair Debbie Matz wrote to the DOD asking the same thing.

The DOD’s final rule permits federal credit unions making PALs in accordance with NCUA’s regulation to exclude one application fee per covered servicemember in a rolling 12-month period from the military APR. The proposed rule would have included the application fee into the military APR calculation for each  PAL made to a servicemember.

The 36% military APR cap now covers most non-mortgage-related consumer credit transactions under the Truth in Lending Act, including credit card accounts and installment quotes, as well as PALs.

The rule also:

  • 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
  • Pre-empts state law in certain circumstances.

According to the NCUA, its staff is developing guidance and examination procedures in connection with the final rule.