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Under the Military Lending Act (MLA) rule changes that took effect in 2016, can we still rely on a signed borrower statement to confirm whether a loan applicant is a member of the military? – IBA Compliance Connection

IBA Compliance Connection

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Under the Military Lending Act (MLA) rule changes that took effect in 2016, can we still rely on a signed borrower statement to confirm whether a loan applicant is a member of the military?

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Yes, your bank may rely on its own method to assess whether an applicant is covered by the Military Lending Act, including by relying on a borrower’s statement.

However, under the revised rule, there are only two ways to verify an applicant’s status that will create a presumption of compliance with the rule: (1) checking the Department of Defense’s database, or (2) relying on a consumer credit report from a nationwide consumer reporting agency. Consequently, although you may continue to use a borrower’s statement, that verification method does not offer the same safe harbor protections as the two methods outlined in the rule.

For resources related to our guidance, please see:

  • MLA Rules, 32 CFR 232.5(a) (“No restriction on method for covered-borrower check. A creditor is permitted to apply its own method to assess whether a consumer is a covered borrower.”)
  • MLA Rules, 32 CFR 232.5(b)(2) (“To determine whether a consumer is a covered borrower, a creditor may verify the status of a consumer by using information relating to that consumer, if any, obtained directly or indirectly from the database maintained by the Department, available at https://www.dmdc.osd.mil/mla/welcome.xhtml. A search of the Department's database requires the entry of the consumer's last name, date of birth, and Social Security number.”)
  • MLA Rules, 32 CFR 232.5(b)(2) (“To determine whether a consumer is a covered borrower, a creditor may verify the status of a consumer by using a statement, code, or similar indicator describing that status, if any, contained in a consumer report obtained from a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis, or a reseller of such a consumer report (as each of those terms is defined in the Fair Credit Reporting Act ( 15 U.S.C. 1681a) and any implementing regulation ( 12 CFR part 1022)).”)
  • MLA Rules, 32 CFR 232.5(b)(3) (“A creditor who makes a determination regarding the status of a consumer by using one or both of the methods set forth in paragraph (b)(2) of this section shall be deemed to be conclusive with respect to that transaction or account involving consumer credit between the creditor and that consumer, so long as that creditor timely creates and thereafter maintains a record of the information so obtained.”)