Compliance: Does MLA apply if active duty status changes?

May 16, 2016

CUNA’s compliance staff continues its deep dive into requirements under the changed Military Lending Act (MLA), as well as answering questions that come from credit unions trying to ensure they remain in compliance. The changes to the MLA, finalized last year, place a number of protections on loans extended to covered military servicemembers.

One recent question brought to CUNA staff involves what to do if a borrower is on active duty when they establish an open-end loan, ceases to serve on active duty, but later enters active duty again, while the loan is still active.

Under the MLA rule, the borrower’s status at the time the loan is established is the determining factor.

In the above question, since the borrower is on active duty when the loan is established, the loan is subject to the MLA. Once the borrower’s active duty status ended, the loan is no longer subject to the MLA.

When the borrower entered active duty again, the loan should not be subject to the MLA, because the loan was already in existence when the borrower re-entered active duty.

A section of the MLA provides two examples that define whether a loan is covered by the MLA depending on the active duty status of the borrower when the loan is established. In the first example, the borrower is a member of the armed forces, but is not serving on active duty.

In this case, a closed-end loan opened at that time is not covered by the MLA because the borrower was not on active duty at the time the loan was established.

The second example has the borrower ceasing to serve on active duty one year after the open-end loan was established. The example states that the MLA no longer applies to the open-end loan.

CUNA’s CompBlog has several entries dedicated to this topic, including the one depicting the above scenarios.

In addition to CompBlog, CUNA’s Compliance Community contains discussion boards and a number of other resources for credit union compliance professionals around the country.