On July 21 the Department of Defense (DOD) published a final rule revising Part 232, which implements the Military Lending Act (MLA). The new rules will impact most lenders.
The Military Lending Act became law in 2006. Part 232 was effective on October 1, 2007. While the MLA appeared to apply very broadly, Part 232 severely restricted coverage. Most lenders have not paid much attention to the existing regulations due to limits on the types of products covered by Part 232.
The revised Part 232 rules are game-changing. They apply the protections of the MLA to all forms of consumer credit, with a few notable exceptions. The changes bring any closed or open-end loan within the scope of the regulation, except for loans secured by real estate or a purchase-money loan, including a loan to finance the purchase of a vehicle. Exclusions also include loans that are excluded from Regulation Z
The implementing regulation provides several significant protections extended to active duty service members and their families, including:
- A 36 percent Annual Percentage Rate limit. This cap, which is referred to as the Military Annual Percentage Rate or MAPR, covers all interest and fees associated with the loan. This limit now includes charges for most ancillary “add-on” products such as credit default insurance and debt suspension plans.
- The MLA prohibits creditors from requiring service members to: submit to mandatory arbitration and onerous legal notice requirements; waive their rights under the service members’ Civil Relief Act; provide a payroll allotment as a condition of obtaining credit (other than from relief societies); be able to refinance a payday loan; or be able to secure credit using a post-dated check, access to a bank account (other than at an interest rate of less than 36 percent MAPR), or a car title (other than with a bank, savings association or credit union).
The Rule is effective on October 1, 2015, but compliance is not mandatory until October 3, 2016. The one-year delay on mandatory compliance is much appreciated.
The announcement from the Department of Defense is available at: http://www.defense.gov/Releases/Release.aspx?ReleaseID=17395.
The revised regulation is available at: http://www.gpo.gov/fdsys/pkg/FR-2015-07-22/pdf/2015-17480.pdf