The lending restrictions of the Military Loan Act (“MLA”) are expanded to apply to consumer credit card issuers and unsecured consumer lenders. Compliance in most areas was mandatory as of October 3, 2016, but for credit cards, the mandatory compliance date is October 3, 2017. This is the result of the rule end of the Department of Defense (“DoD”) of July 21, 2015 that modifies the military loans Regulation of the law. Depository institutions that were not previously subject to the regulations are included. Compliance with the expanded regulations requires adjustments to the financial products offered to military members and their families.
The law and its amendments
The Military Loan Act, 10 USC § 987, originally took effect on October 1, 2007. It was amended twice in 2013 and 2015. The MLA was designed to deter loans that charge excessive fees and interest rates, ignoring the borrower’s ability to pay. , or those who set unrealistic payment schedules. It prohibits obtaining loans with checks, electronic access to bank accounts, vehicle titles or assignment of military salaries.
The MLA applies to active duty military personnel, active Reserve and National Guard personnel serving under Title 10 orders, and their dependents with a valid military identification card. There is an active duty requirement, which means serving under a call or order for more than 30 days. Dependents are defined as those individuals who receive more than half of their support during the 180 days immediately preceding a credit extension. It does not cover retirees, unless they are also dependent on a covered borrower. The definition of “dependent” has been expanded to be consistent with the way that term is used to determine eligibility for health care. Cf. 10 USC § 1072. As a result, same-sex spouses and certain former spouses who have not remarried may be covered.
The MLA restrictions only apply to accounts opened while the service member or dependent is eligible, and the MLA protections end when the consumer is no longer covered by the MLA. Lenders must use standard loan application language to determine whether borrowers are service members or covered dependents. Lenders can consult a Department of Defense database to verify active duty status: https://mla.dmdc.osd.mil/; See alsohttps://www.dmdc.osd.mil/appj/scra/.
The most recent amendment extends the MLA’s protections to a broader range of open and fixed capital credit products. Now, almost all loan products are subject to the MLA with few exceptions. It modified its definition of “consumer credit” to now encompass credit offered or extended to a covered borrower for primarily personal, family, or household purposes, and that is (i) subject to a finance charge or (ii) payable by agreement written in more than four installments. 12 CFR 1026.1 (c) (1) (iii). Credit cards and student loans are included, as well as installment loans, vehicle title loans, payday loans, repayment anticipation loans, deposit advance loans, and open lines of credit. The exceptions are home purchase or refinance loans and auto loans secured by the purchased vehicle. However, refinancing a car loan is not exempt. A loan to purchase personal property when the loan is secured by that property is exempt.
The most salient feature of the MLA is that it establishes an inclusive Military Annual Percentage Rate (“MAPR”) limit of 36% for loans made to covered service members and their dependents. The MAPR is not the same as the loan interest rate, nor is it the annual percentage rate disclosed pursuant to Regulation Z, which implements the Truth in Lending Act. MAPR includes interest, fees, credit service charges, credit renewal fees, credit insurance premiums, and other fees assessed in relation to the loan. The regulations governing MAPR calculations are detailed and credit cards have their own rules for evaluating MAPR. In the case of closed loans, the MAPR will be calculated at the time the loan is made or before. For indefinite credit contracts, the MAPR will be calculated with each billing cycle.
Finance charges under Regulation Z and other charges covered as interest under the MLA are required to be included in the MAPR at 36%. Even if finance charges would not be considered under Regulation Z, certain chares are required to be included in the MAPR. These include application, participation and annual fees, as well as credit insurance premiums and fees for debt cancellation or debt suspension agreements. Fees for credit-related ancillary products sold in connection with the credit transaction or account will also be included.
A credit agreement prohibited by the MLA is void from the start. Covered borrowers can recover damages from creditors. Regulatory oversight comes from the enforcement agencies of the Section 108 Truth in Lending Act. Watch 15 USC § 1601; 12 CFR 226. There has been at least one class action certified under the MLA against auto title loan companies on the basis of requiring interest in excess of the MAPR. Additionally, the MLA authorizes government agencies to enforce MLA requirements through restitution and administrative penalties ranging from $ 5,000 per day to $ 25,000 per day to $ 1,000,0000 per day for first, second, and third violations. level, respectively. While most states allow payday loans, some, including Illinois, also authorize state regulators to enforce the MLA. 815 ILCS 122 / 2-51.
© 2021 Heyl, Royster, Voelker & Allen, PCNational Law Review, Volume VIII, Number 52