Were you MIA for MLA?
Were you MIA for MLA?
The mandatory compliance date for the provisions of the Military Lending Act (MLA) was October 3, 2016. We will discuss the requirements of the provisions just in case it was off your radar.
The MLA provides protection to active duty members of the military and their covered dependents. The provisions expands the definition of consumer credit (closed and open-end) to be consistent with credit that is subject to the Truth in Lending Act (Regulation Z). It also included exceptions to coverage such as: residential mortgages secured by interest in a dwelling, vehicle purchase loans secured by the vehicle and loans to purchase personal property secured by the property.
A covered borrower may not be imposed a Military Annual Percentage Rate (‘‘MAPR’’) greater than 36 percent. A creditor must provide to the covered borrower the following information before or at the time the borrower becomes obligated on the transaction or establishes an account for consumer credit:
- A statement of the MAPR
- Any disclosures required by Regulation Z and
- A clear description of the payment obligation of the covered borrower.
The creditor must deliver the disclosure in writing as well as orally. Oral disclosure can be provided to the covered borrower in person or by a toll-free telephone number to deliver the disclosure when the covered borrower contacts the creditor.
The following is the model statement that may be used:
‘‘Federal law provides important protections to members of the Armed Forces and their dependents relating to extensions of consumer credit. In general, the cost of consumer credit to a member of the Armed Forces and his or her dependent may not exceed an annual percentage rate of 36 percent. This rate must include, as applicable to the credit transaction or account: The costs associated with credit insurance premiums; fees for ancillary products sold in connection with the credit transaction; any application fee charged (other than certain application fees for specified credit transactions or accounts); and any participation fee charged (other than certain participation fees for a credit card account).”
Who are covered borrowers and how do you verify that they are?
The term means a consumer who, at the time the consumer becomes obligated on a consumer credit transaction or establishes an account for consumer credit, is a covered member or a dependent (of a covered member). A covered member is a member of the armed forces who is serving on Active duty under a call or order that does not specific a period of 30 days or fewer or Active Guard or Reserve duty.
A creditor can apply its own method to assess whether a consumer is a covered borrower. However, there is safe harbor if the creditor uses:
- Department of Defense (DoD) database – The creditor may verify the status of the consumer directly or indirectly at https://www.dmdc.osd.mil/mla/welcome.xhtml. This search requires the consumer’s last name, date of birth and social security number and must be used before establishing credit.
- Consumer report from a nationwide Consumer Reporting Agency – A creditor may verify the status of a consumer by using a statement, code, or similar indicator describing that status contained in a consumer report obtained from a national consumer reporting agency.
A creditor is thought to be conclusive so long as they timely create and maintain a record of information so obtained.
If the MLA was off your radar, you still have time to comply with the new provisions. For more information, refer to:
- The final rule – https://www.gpo.gov/fdsys/pkg/FR-2015-07-22/pdf/2015-17480.pdf
- The DoD Interpretive rule – https://www.gpo.gov/fdsys/pkg/FR-2016-08-26/pdf/2016-20486.pdf