Removing Barriers Blog

DoD Issues Final Payday Lending Rule
Posted July 21, 2015 by Chandler Schuette

Today the U.S. Department of Defense (DoD) expanded the types of credit products that are covered by a 36% rate cap and other military-specific protections under the Military Lending Act (MLA) through a final rule. CUNA had previously filed comments with DoD in response to their proposal.

CUNA continues to strongly support MLA protections for servicemembers from unscrupulous business practices of organizations targeting our military personnel, but has concerns that the rules scope is overly broad. Specifically, CUNA is disappointed that there was not a blanket exemption for credit unions who provide alternatives to predatory loans, and who seek to provide their members with products and services at a fair and reasonable rate.

CUNA also previously expressed concerns that burdensome regulations in this area could ultimately reduce the ability of credit unions to provide the products and services to service members and their families, that they want and need.

The final rule announced Tuesday broadens the definition of “consumer credit” from the original narrow parameters under the MLA, which defined “consumer credit” products as:

  • closed-end payday loans for no more than $2,000 and with a term of 91 days or fewer;
  • closed-end auto title loans with a term of 181 days or fewer; and
  • closed-end tax refund anticipation loans.

Under the new definition, the DoD said the term would be "be defined consistently with credit that for decades has been subject to the disclosure requirements of the Truth in Lending Act (TILA), codified in Regulation Z, namely: credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and that is (i) subject to a finance charge or (ii) payable by a written agreement in more than four installments."

The MLA regulation would, however, continue to exclude residential mortgages and credit extended to finance the purchase of, and secured by, personal property, such as vehicle purchase loans.

The rule goes into effect on Oct. 1, and compliance is required by Oct. 3, 2016 - a safe harbor that CUNA appreciates for compliance purposes.

CUNA also had urged the DOD to work with the NCUA to ensure the agency's Payday Alternative Loans (PAL) product can continue to be offered, and are excluded from the proposal changes. We are currently in the process of analyzing the final rule to determine all possible effects on credit unions.

For more information, please contact Leah Dempsey, Senior Director of Advocacy and Counsel.