Final Rule: Military Lending Act

Summary:

The Department of Defense (DOD) issued a final rule amending the implementing regulations of the Military Lending Act of 2006 (MLA). The final rule expands specific protections provided to service members and their families under the MLA and addresses a wider range of credit products than the DOD's previous regulation. FDIC-supervised institutions and other creditors must comply with the rule for new covered transactions beginning October 3, 2016. For credit extended in a new credit card account under an open-end consumer credit plan, compliance is required beginning October 3, 2017.

Statement of Applicability to Institutions Under $1 Billion in Total Assets: This Financial Institution Letter applies to all FDIC-supervised financial institutions.

Highlights:

The final rule:

• Extends MLA protections, including the 36 percent Military Annual Percentage Rate (MAPR) cap, to a wider range of credit products, including credit cards.
• Modifies the MAPR to include fees for credit-related ancillary products sold in connection with the credit transaction, finance charges associated with consumer credit, and certain application and participation fees. Also, for credit cards, the MAPR excludes certain fees if bona fide and reasonable.
• Provides a safe harbor for creditors ascertaining whether a consumer is covered by the final rule's protections.
• Modifies the existing prohibition on rolling over, renewing or refinancing consumer credit.
• Subjects creditors to civil liability and administrative enforcement for MLA violations.

Continuation of FIL-37-2015

Distribution:

• FDIC-Supervised Institutions

Suggested Routing:

• Chief Executive Officer
• Chief Compliance Officer
• Chief Lending Officer

Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).

Financial Institution Letters 
FIL-37-2015 
September 8, 2015

Issuance of Final Rule Implementing the Military Lending Act

The Department of Defense (DOD) issued a final rule amending the implementing regulations of the Military Lending Act (MLA). Congress passed the MLA in 2006 to provide specific protections for active duty service members and their dependents in consumer credit transactions. The final rule amends the MLA regulation¹ to expand specific protections provided to service members and their families and addresses a wider range of credit products that fell outside of the scope of the DOD's existing regulation.

The MLA caps the Military Annual Percentage Rate (MAPR) on covered transactions at 36 percent, requires disclosures to alert service members and their dependents of their rights, and prohibits creditors from requiring arbitration in the event of a dispute, among many other protections.

The final rule:

• Defines "consumer credit" consistently with credit that is subject to the protections of the Truth-in-Lending Act (TILA) 
  • Credit insurance premiums and fees for debt cancellation or debt suspension agreements;
  • Fees for credit-related ancillary products sold in connection with the credit transaction or account;
  • Finance charges associated with the consumer credit; and
  • Certain application fees and participation fees, including annual fees.
• Extends MLA protections to a wider range of credit products, including credit cards 
• Permits creditors to use two methods to ascertain whether a consumer is a covered borrower for purposes of the regulation's protections 
• Modifies the existing rule on rolling over, renewing or refinancing consumer credit 
• Modifies the disclosures that a creditor must provide to a covered borrower to be consistent with TILA 
• Prohibits mandatory arbitration clauses and other abusive practices 
• Subjects creditors to civil liability and administrative enforcement for MLA violations 

Link: Federal Register Notice http://www.gpo.gov/fdsys/pkg/FR-2015-07-22/pdf/2015-17480.pdf

Additional Related Topics:

• Military Lending Act Regulation, 32 CFR Part 232