Topic: Military Lending Act (MLA)
-
Are there any laws or regulations that would prevent us from raising the default rate on our commercial loans from 18% to 22%? Also, is there a maximum default rate we can charge on consumer loans? We are not aware of any prohibitions other than the Military Lending Act’s annual percentage rate (APR) cap of 36% for active-duty service members and their dependents.
—
by
No, we do not believe there is any law or regulation that would prevent you from charging a 22% default rate on a commercial loan, provided your customer agreed to the rate in your loan agreement. Additionally, Illinois does not impose a maximum default rate charged on consumer loans, but courts have held that default…
-
We are implementing an unsecured consumer loan product for which borrowers must apply using a smart phone app. The app uses an automatic underwriting model that allows for credit decisions to be made and funded at any time of day. We are aware that the Military Lending Act (MLA)’s rules require certain disclosures to be made orally, either in person or using a toll-free number. However, if a consumer using the app to apply for credit calls the toll-free number outside of our normal business hours, no one will be available to take their call and provide the disclosure. Are you aware of any guidance addressing the use of pre-recorded messages to provide oral disclosures in such situations?
—
by
No, we are not aware of any guidance addressing the use of a pre-recorded message to fulfill the MLA’s oral disclosure requirement. Since the Department of Defense has released guidance confirming that creditors can fulfill the oral disclosure requirement with a generic message that does not provide any loan-specific information, we believe it may be…
-
Does the 36% maximum APR for consumer loans only apply if the borrower is a servicemember?
—
by
Yes, to be eligible for the Military Lending Act’s (MLA) 36% rate cap on consumer credit, a borrower must be an active servicemember or the dependent of an active servicemember at the time that the borrower enters into the credit transaction. The MLA regulations set forth a Military Annual Percentage Rate (MAPR), which caps the…
-
Our Military Lending Act (MLA) policy for 2018 includes the following clause in the definition of consumer credit: “Additionally, until October 3, 2017 consumer credit does not mean credit extended in a credit card account under an open-end (not home secured) consumer credit plan. (This date may be extended by order of the Secretary of Defense to a date not later than October 3, 2018.)” Should we include this language in our 2019 policy?
—
by
No, we do not recommend including this language in your 2019 MLA policy, as the exemptions for credit cards from the definition of “consumer credit” referenced in the language now have expired. The MLA regulations set forth a Military Annual Percentage Rate (MAPR), which caps at 36% the annual rate charged for consumer credit extended…
-
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?
—
by
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…
-
One of our auto loan customers is an active duty military servicemember. He would like to trade in his existing car and finance the purchase of a new car. The trade-in value of the current car will not cover the balance on his existing loan (he has “negative equity”), so the proceeds of the new loan will cover the purchase price of the new car, plus a small amount to pay off the remainder of the existing loan balance. Because a portion of the proceeds will be used to pay off an existing car loan, does the Military Lending Act apply to the new loan?
—
by
We believe that this loan could be treated as an auto purchase loan, which would be exempt from the Military Lending Act (MLA)’s consumer protections. But there is some ambiguity on this point. We contacted the Department of Defense (DOD) to pose this question and were informed that the DOD is aware of this ambiguity…
-
Does the Department of Defense (DoD) Interpretive Rule #18 regarding Section 232.8(e) of the Military Lending Act (MLA) mean that we can still use a right of setoff on covered transactions?
—
by
The DoD’s rule and interpretive guidance are subject to multiple interpretations on this point. In our view, the more reasonable interpretation is that the rule does not prohibit a bank’s right of setoff. Section 232.8(e) prohibits a creditor from using “a check or other method of access to a deposit, savings, or other financial account…
-
Does the Department of Defense (DoD) Interpretive Rule #17 regarding Section 232.8(e) of the Military Lending Act (MLA) prohibit a lender from taking a security interest in funds deposited prior to the extension of credit in an account not established in connection with the credit transaction? What if the account was established in connection with the credit transaction?
—
by
The DoD’s rule and interpretive guidance are subject to multiple interpretations on this point. In our view, the more reasonable interpretation is that the MLA permits a lender to take a security interest in an account that is established prior to an extension of credit and that is unrelated to the transaction. We understand that…
-
What is the Military Annual Percentage Rate (MAPR) in Illinois? Is it greater than 36% for covered transactions?
—
by
Illinois does not have a “military annual percentage rate” (MAPR), because that term is specific to “consumer credit” loans covered under the federal Military Lending Act (MLA). The MAPR is a broad term used in federal MLA regulations to refer to the total cost of “consumer credit.” The MAPR applies to all loans incurred by…
-
We have a customer who is three months behind on his car loan payments. We know he is in the National Guard so we submitted an Active Duty Status request on the Department of Defense’s Defense Manpower Data Center’s website to confirm whether he had “active duty status.” His name was not in the database, so we repossessed his car. Now he claims that he has a letter confirming that he was on active duty status within 90 days of our repossession. If this is true, does that matter under the Servicemembers Civil Relief Act (SCRA)? Do we have to wait 90 days after his active duty status ends before repossessing his car? What is our liability if we were wrong in our understanding of the law?
—
by
No, it does not matter if the customer can establish that he was on active duty within 90 days of your repossessing his car if he was not active at the time of repossession. While the SCRA extends certain protections to service members after the termination of their active duty status — such as protections…