DOD Proposes to Expand Military Lending Act Rate Cap to More Consumer Credit Products

Written by Shari R. Pogach, Regulatory Paralegal

Last Friday, the Department of Defense (DOD) announced a proposed regulation that would expand the Military Lending Act’s (MLA’s) 36 percent rate cap, among other protections, to additional consumer credit products.  DOD’s proposed changes would apply the MLA protections to all forms of payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit and credit cards (with some conditional exclusions).  

Under current implementing rules, MLA protections extend to 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. The proposed changes would amend the definition of “consumer credit” to more closely match the definition under the Truth in Lending Act, covering more credit products.  Not all credit products would be affected by the proposed regulation - residential mortgages and purchase-money loans (to buy items like cars) are excluded from the MLA’s definition of “consumer credit.”

Elements of the proposal include:

• Amendments to extend the protections of the MLA implementing regulations to a broader range of credit products. The proposal would define “consumer credit” to be consistent with closed- and open-end credit products that already are regulated under the Truth in Lending Act. The intent is to move away from the product-by-product approach and towards a comprehensive, no-gaps approach.
• Alignment of the MLA with TILA to provide service members with more lasting protections.
• Loan disclosures intended to simplify a lender’s disclosure obligations to covered borrowers under the MLA and would provide for a non-numerical descriptive statement of Military APR that would be consistent across loans offered to service members.
• Allow lenders to assess whether borrowers are covered by the MLA by checking their status in an existing, publicly-available online DoD database. Lenders who used the database would receive a safe harbor from liability under the MLA.

NAFCU will be studying the proposed rule carefully for any unintended consequences from the proposal that would prevent credit unions, particularly those operating on military installations, from providing those safe credit products that servicemembers have come to depend on from their credit unions.  Comments on the proposed rule are due November 28, 2014.  A Regulatory Alert with an analysis of the proposal will soon be available for NAFCU members here (NAFCU member login needed).