Insights: Article

2015 Amendments to the Military Lending Act Now in Effect

By Linda Albrecht

October 21, 2016

The 2015 amendments to the Military Lending Act (MLA) went into effect October 3, 2016, with the credit card provisions delayed until October 3, 2017. Not to be confused with the Servicemembers Civil Relief Act (SCRA), the primary distinction of the MLA is that it addresses the origination of loans to covered borrowers while actively serving in the military, while the SCRA addresses protections for existing loans made to covered borrowers before they were called to active duty.

Borrowers Impacted
Borrowers impacted by the MLA include members of the armed forces (and their dependents) serving in active duty. Therefore, the key to compliance is to properly identify whether or not a consumer is a covered borrower. There are two methods that provide lenders a safe harbor:

  • Obtain information directly from the MLA database
  • Rely on information contained in a consumer credit report

Determination of eligibility should be done at the time the transaction is initiated or up to 30 days prior. Borrower statements of eligibility can be used to determine if you are working with a covered borrower, but this method will no longer offer a safe harbor for compliance. Proper identification of covered borrowers will be a key component to complying with the provisions of the act. If you have not already done so, your organization should add a step in its loan processing to verify the existence of a covered borrower and implement a process to maintain documentation used to determine the borrower’s status.

Loans Affected
The loans previously affected (vehicle title loans, payday loans and tax refund anticipation loans) by the Military Lending Act of 2006/Talent Amendment have been greatly expanded by the 2015 amendments. Loans covered under the amendments now include the majority of consumer purpose loans covered by Regulation Z—Truth in Lending Act. Loans covered include credit extended to a covered borrower for personal, family or household purpose that are subject to a finance charge, and payable in more than four installments. Loans exempt from the rules include residential mortgage transactions (including home equity loans and Home Equity Lines of Credit/HELOCs), purchase money auto loans, or other purchase money consumer loans.

Loans covered by the MLA have certain restrictions and prohibit creditors from:

  • Charging prepayment penalties
  • Charging over a 36 percent MAPR. The Military Annual Percent Rate includes fees not ordinarily included in the finance charge calculated under Regulation Z. Fees included in the MAPR calculation include credit and debt cancellation insurance premiums, fees for credit-related ancillary products, and other credit participation fees.

The above list is not all inclusive. The act also prohibits other contract restrictions such as arbitration and the borrower’s specific waiver of rights under the Servicemembers Civil Relief Act.

Disclosure Requirements
In order to comply with the MLA, creditors are required to give certain disclosures both orally and in writing, in a format the borrower can keep. Borrowers must be provided a:

  • MAPR Statement
  • Description of the payment obligation
  • Account opening disclosures

The payment description and account opening disclosures can be accomplished using Truth in Lending disclosures currently provided when originating a consumer loan. The MLA suggests the following model language for the MAPR Statement:
“Federal law provides important protections to members of the Armed Forces and their dependents relating to extensions of consumer credit. In general, the cost of consumer credit to a member of the Armed Forces and his or her dependent may not exceed an annual percentage rate of 36 percent. This rate must include, as applicable to the credit transaction or account: The cost associated with credit insurance premiums; fees for ancillary products sold in connections with the credit transaction; any application fee charged (other than certain application fees for specified credit transactions or accounts); and any participation fee charged (other than certain participation fees for a credit card account).”

Penalties for Non-Compliance
The penalties for non-compliance can be severe, resulting in criminal penalties including fines and imprisonment if creditors knowingly violate the rules. Non-compliance can also lead to violations of the Truth in Lending Act and Unfair, Deceptive and Abusive Acts or Practice (UDAAP), not to mention the reputational risk for non-compliance.

Latest Insights

November 16, 2018
If your business sells or operates in more than one state, it’s important to understand the concept of nexus. Depending on how you’re earning revenue, having nexus could impose a variety of taxes, which vary state to state. Learn more in our…
November 15, 2018
Until recently, many businesses weren’t overly concerned about sales tax. They knew they needed to collect and remit in the state in which they resided, but beyond that, their compliance burden was limited.
November 12, 2018
This insight explores what dealerships can expect from the proposed section 199A regulations under tax reform.
November 8, 2018
Are you a business taxpayer with annual gross receipts of $25 Million or less? If so, you may be eligible to take advantage of new Small Taxpayer Safe Harbors that could generate significant tax savings and simplify your tax returns in future years!
November 8, 2018
Considered the most significant tax code overhaul in over three decades, the Tax Cuts and Jobs Act passed in 2017 includes provisions affecting both individuals and businesses.
November 7, 2018
Recorded Webinar
State and local sales tax compliance is always evolving, making it important to stay up-to-date on changes affecting your tax liability and responsibilities. This session will cover what you need to know regarding the recently enacted state and…
November 7, 2018
“Why is my portfolio underperforming the market?” This question may be on your mind.
November 5, 2018
Identify your implementation methodology. There are four practical expedients available. We'll explore each option.
November 5, 2018
Deeper dive into ASU 2016 liquidity.