Remember MLA Compliance Right Around the Corner
Wake up kids, the purpose of this blog is to remind you that summer is almost over and there is a ticking regulatory time bomb right around the corner. The good news is that we expect further guidance on this regulation in the near future.
I am referring to regulations expanding the scope of the Military Lending Act. When Congress first passed this Act, regulators decided to clamp down on payday loans, refund anticipation loans and vehicle title loans provided to active-duty military personnel and their dependents. In 2015, regulators decided it was too easy to evade the restrictions placed on these loans, so the MLA now extends to most consumer credit transactions. Compliance becomes mandatory in October, but restrictions on credit card accounts become mandatory in October 2017.
Even if you don’t lend to many military members, this regulation will have an operational impact on your credit union. First, when you do make a covered loan to a member of the military, such loans are subject to a military APR of 36%. This APR is calculated differently than the traditional APR under Regulation Z. Most notably, it includes application fees.
You already have an obligation under the MLA to identify military personnel. But since many of you do not offer vehicle title loans, for example, this requirement wasn’t of great concern. But now, with the expanded number of loans covered under the Act, you should know what procedures you are going to use to identify covered persons. Two options provide you with a safe harbor to demonstrate compliance. One option is to access an MLA database maintained by the Department of Defense. A second option is to obtain a consumer credit report.
On that note, I hope you had a nice weekend. Now get to work!