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Financial Outsourcing Solutions


FOS Blog

15 Mar

DoD Amends Military Lending Act

DoD Amends Military Lending Act

In December 2017, the DoD issued clarification of its August 26, 2016 Interpretive Rule based on numerous requests for interpretation which was effective immediately.  Several points of clarification are:

  • Exemptions covering purchase money-secured motor vehicles and personal property loans:
    • Financing costs related to vehicle or property securing the credit will NOT disqualify the loan from an exception. Financing credit related costs WILL disqualify the transaction from the exception.
      • Note: This is still in effect, but ABA has issued a letter in January 2018 to the Department of Defense in relation to this part of the rule related to GAP insurance – so stay tuned!
    • The referenced MLA limitation in 232.8(e) of a creditor using a check or other method of access to a deposit, savings or other financial account does not prohibit covered borrowers from granting a security interest to a creditor in the covered borrower’s checking, savings or other financial account provided the security interest is not otherwise prohibited by law.
    • Additionally, the MLA does not prohibit the creditor from exercising a statutory lien on funds that have been deposited to a covered borrower’s account “at any time”. However, the creditor may NOT use such methods as remotely created checks or payment orders to obtain payment from a covered borrower’s account.
    • Lenders may exercise the right arising from a security interest a borrower grants to take security interest in funds deposited within a covered borrower’s account at any time (right to setoff) if the borrower agrees and it is permitted by law.
    • The Rule clarifies that a covered borrower military active duty status check can qualify for safe harbor if performed during processing the consumer credit on the application. This is in addition to when the applicant initiates the transaction; submits an application to establish an account or during the processing of the application; or anytime during a 30-day period prior to such action.

Recommended Action:

  • Update and implement updated MLA policies and procedures immediately.
  • Evaluate the impact to your Bank’s procedures of any of the clarifications as to what can and cannot be included in the amount financed on new and existing covered loans.

For additional information contact Cindy Tice at