Industry Insights

Military Lending Act Rule Finalized

January 2016

The U.S. Department of Defense announced the final Military Lending Act (MLA) rule. The rule applies the protections of the Military Lending Act of 2006 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. The final rule closes loopholes that have allowed lenders to skirt the law with products outside the scope of the existing regulation.

The final rule amends the definition of “consumer credit” in the regulation to more closely align with the broad, traditional definition of credit covered by the Truth in Lending Act. The rule generally covers consumer credit offered or extended to active duty service members or their dependents, as long as one of the following is true:

  • The credit is subject to a finance charge
  • The credit is payable by written agreement in more than four installments

In accordance with the statute, the MLA regulation would continue to exclude:

  • Residential mortgages
  • Credit extended to finance the purchase of, and secured by, personal property, e.g., vehicle purchase loans

The implementing regulation extends several significant protections to active duty service members and their families, including:

  • The Military Annual Percentage Rate (MAPR) is capped at 36 percent. This cap covers all interest and fees associated with the loan; the limit now includes charges for most ancillary “add-on” products such as credit default insurance and debt suspension plans.
  • Creditors are prohibited from requiring service members to do any of the following:
    • Submit to mandatory arbitration or onerous legal notice requirements
    • Waive their rights under the Servicemembers Civil Relief Act
    • Provide a payroll allotment as a condition of obtaining credit (other than from relief societies)
    • Be able to refinance a payday loan
    • Be able to secure credit using a post-dated check, access to a bank account (other than at an interest rate of less than 36 percent MAPR) or a car title (other than with a bank, savings association or credit union)
  • The changes to the definition of credit in the final rule bring any closed- or open-end loan within the scope of the regulation, except loans secured by real estate or a purchase-money loan, including a loan to finance the purchase of a vehicle.

The final rule took effect October 1, 2015, but required compliance will be phased in beginning October 3, 2016. For more information on how these regulatory changes could affect your institution, contact your BKD advisor.

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