CUNA seeks comments on Military Lending Act expansion by Nov. 7

October 27, 2014

WASHINGTON (10/28/14)--The Credit Union National Assciation is asking for credit union comments by Nov. 7 on the U.S. Department of Defense's proposed changes to the Military Lending Act (MLA), which, in part, would expand the scope of products covered by MLA. Comments are due to the department on Nov. 28.

The MLA rule applies to active duty servicemembers and their spouses or dependents and establishes a maximum "military" annual percentage rate (MAPR) of 36% that may be charged on closed-end "consumer credit" transactions.

National Credit Union Administration Chair Debbie Matz has expressed concern about how the DOD proposal could affect lending at credit unions that serve military servicemembers.  She has said that the NCUA, when it 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 MLA 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.

CUNA and the Defense Credit Union Council have expressed their support for the existing DOD rule on consumer credit. Both associations are currently working with credit unions and the state credit union associations to develop a comment letter to the DOD on its proposal. CUNA issued a Comment Call in September.