DoD’s Interpretive Guidance on MLA: Part III – Definition of "Vehicle"

Written by Shereefat Balogun, Regulatory Compliance Counsel

Earlier this summer, my colleague Stephanie Lyon wrote about the DOD’s failure to define some critical terms in the rule, namely: “vehicle”, dwelling”, and “personal property”.  As she explained, these definitions matter, as they helps us determine which loans are included in the MLA’s scope.  Well we have some good news- the DOD’s Interpretive Guidance defined one of those terms- "vehicle".  That said, the guidance does fall short and still leaves some questions unanswered. 

As we all know, there are a few credit transactions which are exempt from the MLA rule.  For purposes of this article, those include:

• Residential mortgages, meaning “any credit transaction secured by an interest in a dwelling,” including loans to finance the purchase or initial construction of a dwelling, a refinance, a HELOC or reverse mortgage;
• Loans that are expressly intended to finance the purchase of a motor vehicle or personal property, where the credit is secured by the vehicle or property being purchased;

See, 32 C.F.R. §232(f)(2).

The Interpretive Guidance released a few weeks ago “clarified” the definition of “vehicle” and specifically excluded motor homes, recreational vehicles (RVs), golf carts, and motor scooters from the definition.  Meaning, they are not exempt from the MLA as a “motor vehicle”.  Here is the question and answer on the issue, taken out of the guidance:

19. Under 32 CFR 232.3(f)(2)(ii) and 232.8(f) what methods of transportation are included within the definition of a “vehicle”?

Answer: For purposes of the MLA, the term “vehicle” means any self-propelled vehicle primarily used for personal, family, or household purposes for on-road transportation. The term does not include motor homes, recreational vehicles (RVs), golf carts, or motor scooters.

Thanks DOD!

However, this “clarity” leads to a new question- if they’re not considered vehicles, what are they? Are these considered “personal property?”  Well we still don’t know, because we still don’t have a definition for “personal property”.  If these are considered personal property, this begs another question.  Why would the DOD bother to exclude boats, RVs, etc., from the definition of “vehicle”, just to include them as “personal property” and have them exempted under 232.3(f)(2)(iii)?  This is rather perplexing.

Or would they be considered a “dwelling”?  The exception for a residential mortgage requires that the credit be “secured by an interest in a dwelling”.  While the rule seems to contemplate that a dwelling-secured interest is involved in order for the residential mortgage exception to apply, we still don't have a definition for "dwelling".

As explained above, even with the recently published interpretive guidance, there are still a lot of gray areas.  Because of the ambiguity that remains with this category of loans, credit unions are strongly advised to consult with counsel.  Indeed, state law may provide helpful guidance.  Thus, having counsel familiar with your state’s property law may help avoid some of the risks associated with the ambiguity left by the rule.  For example, it is common for states to categorize property as “real property” meaning secured by land, and “personal property” which is often a catch-all for all other property, meaning non-real property.

NAFCU’s Regulatory Compliance Team is continuing to review the guidance to understand its full impact on credit unions and will make necessary updates to our Military Lending Act Guide in the coming weeks. Currently available resources can be found here at our MLA Compliance landing page.