Pub. 6 2017 Issue 1

January 2017 29 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 I NITIALLY, THE MILITARY LENDING ACT OF 2006 (MLA) limited coverage of consumer credit to auto title pawn, payday, and refund anticipation loans. In 2015, with the Final Rule, the Department of Defense amended the MLA to more effectively provide protections to service members and their families. The MLA imposes a 36 percent interest rate cap, bans mandatory arbitration, and imposes other restrictions on consumer credit offered to service members. MLA coverage now extends to almost all forms of consumer credit within the Truth in Lending Act’s scope of credit, which includes credit offered or extended to a covered borrower for personal, family or household purposes that is payable by a written agreement in four installments or more, or is subject to a finance charge. There are some exceptions: residential mortgage transactions and purchase money loans. This wider range of creditors are prohibited from charging more than 36 percent interest and cannot require consumers to submit disputes to arbitration. Under the final rule, the MAPR is calculated differently than the APR calculation in Regulation Z. The MAPR includes fees that are not included in the “finance charge” for Regulation Z purposes. This means certain credit transactions that are under the 36 percent cap but include additional charges will exceed the 36 percent limit. However, when calculating the MAPR for credit cards, certain fees, but not all, may be excluded as long as they are bona fide and reasonable. Additionally, the Final Rule alters the safe harbor provisions extended to creditors when checking whether a borrower is covered. Banks are permitted to use their own methods of determining coverage, however, the safe harbor rule only applies if the bank checked coverage using information from the Department of Defense’s Defense Manpower Data Center’s (DMDC) database or a qualifying national consumer reporting agency record. As of October 3, 2016, the safe harbor when using a covered borrower identification statement expired. The determination of military status must be completed before the transaction occurs or the account is opened. Under the Final Rule, banks must provide to each covered borrower the specified disclosures required under TILA and Regulation Z, as well as a statement of MAPR, and a description of the borrower’s payment obligation. The disclosures must be written and provided in a form for the borrower to keep. Banks must also orally provide the information in the statement of MAPR and in the description of the payment obligation, either in person or via a toll-free telephone number. A knowing violation of the MLA is a misdemeanor under the criminal code of the United States and could result in fines or imprisonment for up to a year. A person who violates the MLA is also civilly liable to a covered borrower for actual damages resulting from the violation, punitive damages, costs of the action and reasonable attorneys fees where the covered borrower succeeds, and any other relief. Banks may not be liable if the violation was not intentional and resulted from a bona fide error, such as a clerical, calculation, computer malfunction, programming and printing errors. Compulsory compliance with the Final Rule was required as of October 3, 2016, however, compliance with the credit card provisions has been extended to October 3, 2017. MILITARY LENDING ACT By Abby Hoelting, KBA Legal Dept. Intern The MLA imposes a 36 percent interest rate cap, bans mandatory arbitration, and imposes other restrictions on consumer credit offered to service members.