Military Lending Act – Are You Ready?

Compliance with the Military Lending Act changes will go into effect on October 3 (credit card compliance is not until October 3, 2017), and many credit unions are still trying to work out the details.  The Department of Defense has repeatedly promised guidance, but has not yet delivered.  Needless, the credit union must comply with the requirements beginning next month.  (We have blogged about it here, here, here, and here.)

Recapping; the new requirements include a broader definition of covered loans, and the restriction on the Military Annual Percentage Rate (MAPR).  Covered loans, subject to the requirements, will include both open- and closed-end consumer credit.  This essentially includes all consumer credit except – residential mortgages, personal property, including motor vehicle purchases, ‘own title’ loans issued by banks, savings associations, or credit unions, and any loan not subject to Truth-in-Lending disclosure requirements.  Personal loans, share secured loans, and visa cards will all be covered.  The MAPR is essentially an ‘all in’ rate that cannot exceed 36%.  Fees included in the MAPR calculation include insurance premiums, debt cancellation or suspension agreements, and credit-related ancillary products sold in connection with the loan – except for bona fide fees.

Also, the new requirements include identifying a service member and providing them notification.  In order for the credit union to qualify for the safe harbor provided in the rule, it must use one of two methods for conducting a covered-borrower check.  The credit union can either use the Department of Defense’s website or information on a credit report to achieve the safe harbor.  Currently, it is unknown how credit unions can rely on the information from a credit report to verify duty status, so by default, credit unions should be using the DOD.  And, while the credit union does not have to provide the actual MAPR to the servicemember, it must provide the “Statement of the MAPR” – both written and orally.

Other prohibitions included are:  waiving the right to legal recourse, requiring to submit to arbitration or onerous legal notice in the cast of disputes, allotments for repayment, prepayment penalties, and security interest in deposits.  This restriction may affect the ability to offer share secured loans to service members, in that it prohibits the using existing funds in a deposit account as a security interest in a loan.

Remember that any loan that does not comply with the requirements is void from inception.  The countdown to October 3 is passing quickly.

Let us know if you need any assistance in determining whether your credit union is in compliance with the new requirements.