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InfoSight Highlight: Servicemembers (and Dependent) Consumer Lending (Military Lending Act)
Friday, September 29, 2017 6:55 AM

As required by the John Warner National Defense Authorization Act for Fiscal Year 2007, which added 10 USC 987, the Department of Defense (DOD) issued a regulation that implements the Military Lending Act (MLA) regarding the terms of consumer credit extended by creditors to service members and their dependents.

In July 2015, changes were made that impacted the MLA and became effective on Oct. 1, 2015. Credit unions were required to comply with the changes on Oct. 3, 2016. Credit unions should have policies and procedures in place to determine if their new borrower(s) are considered “covered borrowers” under the MLA. If the borrower(s) are determined to be covered under the rules, the credit union must also determine if the loan is a “covered loan.” If the borrower(s) and the loan are both covered under the rules, the credit union should understand their Military Annual Percentage Rate (MAPR) limitations, as well as the required disclosures that need to be provided prior to consummation.

Loans Covered Under the Rule
The rule defines “consumer credit” as any credit offered or extended to a covered borrower primarily for personal, family, or household purposes and that is:

  1. Subject to a finance charge; or
  2. Payable by a written agreement in more than four installments.

The definition of consumer credit DOES NOT mean:

  1. A residential mortgage (any credit transaction secured by an interest in a dwelling, including a transaction to finance the purchase or initial construction of the dwelling, any refinance transaction, home equity loan or line of credit, or reverse mortgage);
  2. A credit transaction that is expressly intended to finance the purchase of a motor vehicle when the credit is secured by the vehicle being purchased;
  3. A credit transaction that is expressly intended to finance the purchase of personal property when the credit is secured by the property being purchased;
  4. A credit transaction that is an exempt transaction for purposes of Regulation Z;
  5. A credit transaction for a non-covered borrower.

Credit unions should be mindful that if they are refinancing a loan for a borrower, it may be deemed a covered loan. For example, if the credit union is refinancing an auto loan from another lender in order to provide the member with a lower rate, that would not be a credit transaction that is expressly intended to finance the purchase of a motor vehicle and would therefore be a “covered loan” and subject to the MAPR limitations and disclosure requirements.

Source:  InfoSight Compliance.

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