Military Lending: Basic Training

By Jennifer Torbeck, Compliance Consultant for CUNA Mutual Group

The Department of Defense (DOD) issued a final rule in July 2015 to greatly expand the scope of its regulation that implements the Military Lending Act, which mandates certain disclosures and places restrictions on contract terms for covered credit. Previously, the Military Lending Act applied only to three narrow types of credit: (1) payday loans with terms of 91 days or fewer and in amounts of $2,000 or less; (2) vehicle title loans with terms of 181 days or fewer; and (3) tax refund anticipation loans.

Consumer Credit Covered by the Rule

The scope of the regulation has been expanded to cover essentially all consumer credit, with four important exceptions: residential mortgages, purchase money credit secured by a motor vehicle, purchase money credit secured by personal property, and credit exempt from Regulation Z. Examples of the types of credit actually covered by the regulation now include unsecured loans, vehicle refinance loans, unsecured lines of credit, overdraft lines of credit, debt consolidation loans and private student loans.

Borrowers Covered by the Rule

Not all consumers are covered by the Military Lending Act. Covered borrowers include military members serving on active duty at the time credit is extended, and dependents of military members who are serving on active duty at the time credit is extended. “Dependents” generally include the military member’s spouse, children, and certain people who are dependent on the member for over 50% of their support and who reside in the military member’s household.
How will you know whether a member is covered by the Act? The DOD’s final rule provides safe harbor status to credit unions who review the information in a consumer report on the applicant obtained from a nationwide consumer reporting agency, or information obtained from DOD’s online MLA database. The credit union must also make a record of the information obtained in order to ensure safe harbor status.
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