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The Department of Defense
(DoD) recently amended its regulation that implements the Military Lending Act
(MLA), which among other things, limits the amount of interest that a creditor
may charge on “consumer credit” to an APR (referred to as a Military APR, or
MAPR) of 36%. The final rule amends “consumer credit” to extend the definition to
a much broader range of closed-end and open-end credit products. Previously,
“consumer credit” was limited to three categories of products: payday loans,
vehicle title loans, and refund anticipation loans.
Under the final rule, DoD
expands the scope of the MLA regulation by aligning its scope with that of the
Truth in Lending Act and Regulation Z; as amended, “consumer credit” covered
under the MLA is now generally consistent with credit covered by Regulation Z.
Thus, a wide range of credit transactions that are subject to Regulation
Z—including open-end credit and installment loans—are now also subject to the
MLA regulation for the first time. However, the final rule does not apply to
residential mortgage loans, secured motor vehicle and personal property loans,
and transactions not covered by Regulation Z.
While the final rule becomes
effective October 1 of this year, compliance is not mandatory until October of
Calculation of the MAPR
The rule establishes a new
method of calculating the MAPR, which includes several differences from the
calculation of an APR under Regulation Z.
The MAPR calculation must
include any credit insurance premiums and fees for debt cancellation or debt
suspension agreements, as well fees for credit-related ancillary products.
Excluding certain “bona fide” fees, the MAPR calculation generally must also
include any application fee and any finance charge associated with the consumer
credit. However, federal credit unions (and other insured depository
institutions) are permitted to exclude an application fee associated with a
short-term, small dollar loan from the MAPR calculation. (Note that a federal
credit union may exclude the application fee for a short-term, small dollar
loan only once a year for a single borrower, regardless of how many such loans
that individual receives.)
In our December 22 comment letter, CUNA urged DoD to provide flexibility from the rule
for short-term, small dollar loans, including those made through NCUA’s Payday
Alternative Loan (PAL) program. The final rule provides a limited exclusion of
application fees from the MAPR calculation for these types of loans.
Credit Card Accounts
In calculating the MAPR for
credit card accounts, the rule excludes “bona fide” fees, such as application
fees, annual fees, and cash advance fees.
The rule provides a two-year
delay of the effective date for consumer credit extended to a covered borrower
under a credit card account. Therefore, the requirements relating to the
calculation of the MAPR for a credit card account do not apply until October 3,
2017, with an extension of up to one additional year possible.
We appreciate DoD’s exclusion
of bona fide fees for credit card accounts. In our December 26 comment letter, CUNA urged DoD to provide such an exclusion.
The final rule changes the
method by which a creditor may qualify for a safe harbor when checking the
status of a borrower. However, creditors may continue the use of a covered
borrower identification statement for determining covered-borrower status until
October 3, 2016.
After October 3, 2016, in
order to qualify for the safe harbor, creditors may use either of the new
methods for conducting a covered-borrower check. Under these new methods, a
creditor can determine covered-borrower status based on information obtained either
(1) from the MLA Database or (2) in a consumer report.
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ADA Compliance Notice & Legal