WASHINGTON–The Department of Defense has issued its final Military Lending Act (MLA) rule with a goal of cracking down on predatory lending practices that target service men and women.
The rule includes some concessions credit unions had been seeking, including rules related to credit union payday alternative loans (PALS).
Three years in the making, the final rule includes provisions that expand numerous financial protections. The new rule is being praised by NCUA as well as NAFCU, but the latter said it is still reviewing the changes.
“With this action, the department takes an important stand against companies that can prey on our men and women in uniform,” said Deputy Secretary of Defense Bob Work in a released statement. “This new rule addresses a range of credit products that previously escaped the scope of the regulation, compromising the financial readiness of our troops. Today, with our regulatory and enforcement partners, we stand united in support of our service members and their families.”
According to the DoD, the new rule applies the protections of the Military Lending Act to all forms of payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards.
Among the specific protections:
- A 36% APR cap, known as the Military Annual Percentage Rate or MAPR, that covers all interest and fees associated with the loan. This limit now includes charges for most ancillary “add-on” products such as credit default insurance and debt suspension plans.
- A prohibition on creditors requiring service members to submit to mandatory arbitration and onerous legal notice requirements; waive their rights under the service members’ Civil Relief Act; provide a payroll allotment as a condition of obtaining credit (other than from relief societies); be able to refinance a payday loan; or be able to secure credit using a post-dated check, access to a bank account (other than at an interest rate of less than 36% MAPR), or a car title (other than with a bank, savings association or credit union).
- Changes to definitions of credit in the final rule bring any closed or open-end loan within the scope of the regulation, except for loans secured by real estate or a purchase-money loan, including a loan to finance the purchase of a vehicle.
Not all credit products will be affected by the regulation, including residential mortgages and purchase-money loans, which are excluded from the MLA’s definition of “consumer credit.”
The DoD said that service members will still have access to no-interest loans, grants, and scholarships from the four military relief societies.
“The Defense Department’s revised rule implementing the Military Lending Act is a major victory for members of our nation’s military—and for the credit unions that serve military families at home and abroad,” said NCUA Chairman Debbie Matz in a statement. “Military servicemen and servicewomen put their lives on the line each and every day. Unfortunately, some are victimized by predatory lenders each and every day. NCUA, like the Defense Department, is working to ensure that military members who protect our nation are protected from predatory lenders. So we are very grateful to the Defense Department for revising their rule as we requested. The final rule will permit military members to continue receiving affordable payday alternative loans (PALs) which meet NCUA’s regulatory standards for consumer protection. As a result, credit unions can continue to fully serve the military members who so valiantly serve our nation.”
Meanwhile, NAFCU issued a statement noting that the finalized MLA rule includes NAFCU-sought concessions for credit union payday alternative loans (PALS), as well as how credit unions can provide requisite disclosures.
“We have always supported protecting the troops from predatory lenders. We appreciate DoD taking a measured approach with the final rule,” said NAFCU Military Liaison Quincy Enoch. “While NAFCU appreciates that DoD heeded many of our concerns and took steps in this final rulemaking to limit the impact on credit unions, we are still carefully reviewing it to assess its full impact on our members. Credit unions have a long track record of providing much needed financial services to the troops, and NAFCU believes that regulators should be cautious of burdening this relationship.”
NAFCU noted the final rule makes important modifications that it had sought on how a credit union can meet its disclosure requirements under MLA. Specifically, the final rule allows a credit union to list a toll-free telephone number on all consumer credit applications to satisfy oral disclosures requirements.
CUNA said it is evaluating the rule.
"We appreciate that there is a one-year safe harbor period for compliance with this rule," said Elizabeth Eurgubian, CUNA deputy chief advocacy officer. “CUNA strongly supports MLA protections for service members from unscrupulous business practices of organizations targeting our military personnel but will continue to evaluate the rule as the DoD did not completely exempt credit unions, who have always been dedicated to the financial well-being of their member-owners, from the reach of the regulation."