Pub. 4 2015 Issue 9

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 28 MILITARY LENDING ACT By Bobby Young, JD, HR and IT Consultant KBA Consulting Services O NNOVEMBER 11TH, THEUNITEDSTATES once again observed Veterans Day, a day set aside to honor United States’ current and former service men and women, as well as the estimated thirty million spouses and dependents living around the world. 1 Servicemen and women face many threats to their personal safety abroad and challenges to their financial livelihood at home. The United States Department of Defense (DOD) responded to these challenges in 2006 by enacting the Defense Authorization Bill to address predatory lending targeting military personnel. On October 1, 2015 the Military Lending Act (MLA) replaced the Defense Authorization Bill to fill certain loopholes which remained in the original law. The MLA final rule expands the types of credit subject to this act to more closely reflect the definition used in the Truth in Lending Act. The MLA, also, provides guidance on how to determine whether a borrower is a “covered borrower.” The rule extends the limit on the amount of interest permitted to be charged on consumer loans made to covered borrowers at 36% MAPR along with instructions for the calculating the MAPR. The rule also details the required disclosures that must be provided as well as other legal protections provided to covered borrowers. The MLA, however, does provide a safe harbor for creditors ascertaining whether a consumer is covered by the final rule's protections. Finally, the rule explains how the provisions of the MLA will be enforced, including audit procedures. 2 The MLA covers all forms of consumer credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and that is subject to a finance charge or payable by a written agreement in more than four installments. The Act does not apply to consumer credit that was entered into prior to active duty or by a consumer who was a covered borrower at the time the account was established, but is no longer a covered borrower such as remarried former spouses. Not all forms of credit, however, are covered by the MLA. The act specifically excludes from the definition residential mortgages, a purchase money loan for a vehicle or personal property, and any other type of loan exempt from Truth in Lending Act. 3 The MLA defines a “Covered Borrower” as a consumer who, at the time of becoming obligated on a consumer credit transaction or consumer credit account, is a member serving in the armed forces on active duty or active guard or reserve duty, or a dependent of the military member. Dependents include spouses, widows/widowers, children under the age of 21, children under the age of 23 if the child is enrolled in a full-time course of study at an institution of higher learning, or children incapable of self-support because of a mental or physical incapacity. The definition of dependent also includes parents-in-law who are in fact dependent on service members, unremarried former spouses, and children in the legal custody of a service member as a result of an order of a court of competent jurisdiction in the United States. Covered borrowers benefit from the following protections under the Military Lending Act. The MLA institutes a 36-percent MAPR interest cap and other restrictions to a host of products, including credit cards, installment loans, private student loans, federal student loans not made under Title IV of the Higher Education Act, and all types of deposit advance, refund anticipation, vehicle title, and payday loans. In addition to the MAPR cap, a creditor is prohibited from requiring, as a condition of consumer credit, that the borrower establish an allotment to repay the loan and may not charge prepayment penalties. Creditors are also prohibited from requiring that a borrower submit to arbitration, or other onerous legal notice provisions in the case of a dispute or demands of unreasonable notice from the covered borrower as a condition for legal action. The rule further prohibits creditors from ensuring payment by obtaining an advance check from the consumer at the time of the loan, to be processed when the loan becomes due. A covered borrower may not waive any right to legal