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DOD Publishes Updated Guidance to Military Lending Act
Tuesday, December 19, 2017 6:35 AM

The Department of Defense has published guidance pertaining to the Military Lending Act. This new interpretive rule amends the guidance and clarifies an issue not addressed in its August guidance. Areas covered in the new guidance include:

Purchase-money vehicle loans
The new guidance clarifies that whether a purchase-money loan loses its exemption from the MLA depends on what is financed.

Generally, financing costs that are related to the collateral’s purchase will not eliminate the loan’s exemption from the MLA rule, but a loan that finances a credit-related product or service is not eligible for the exemption. For example, a loan that includes financing for Guaranteed Auto Protection (GAP) Insurance does not qualify for the exemption.

The new guidance restates the concept from the initial Interpretive Rule: a loan that provides purchase-money secured financing of a vehicle or personal property, along with additional “cash-out” financing that is unrelated to the purchase, does not qualify for the exemption and must comply with the MLA rule’s requirements.

Security interests in covered borrower’s deposit accounts
The new guidance also states the MLA rule prohibits a creditor from using the borrower’s account information to create a remotely created check or payment order to collect payments. However, the rule permits a covered borrower to convey security interests to creditors in their checking, savings, or other deposit accounts, provided they are not prohibited by other applicable law and the creditor complies with all other provisions of the MLA rule.

The new guidance also states that the MLA rule permits a creditor to exercise a statutory right to take a security interest in a covered borrower’s deposit accounts at any time, including enforcing statutory liens, provided that it is not prohibited by other applicable law and the creditor complies with all other provisions of the MLA rule.

Determining covered-borrower status
The new guidance clarifies that a creditor qualifies for the safe harbor under the MLA Rule when the covered borrower check is conducted at the time a consumer initiates a credit transaction or applies to establish an account, or up to 30 days prior to the action taken by the consumer.

Learn more at CUNA's CompBlog and Compliance Community