Removing Barriers Blog

CUNA Final Rule Analysis of Military Lending Act Rule
Posted August 07, 2015 by CUNA Advocacy

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 2016.

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.

Identification of Covered Borrowers

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.