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Military Lending Act Letter
On Friday, June 21, 2017, CBA and other financial trades submitted a letter to the U.S. Department of Defense (DoD) recommending changes to the Military Lending Act (MLA). Specifically, the letter requests the DoD:
- Clarify the exemption for purchase money loans (including vehicle purchase money loans) applies unless the borrower is receiving cash from the proceeds of the loan. Thus, purchase money loans used to finance related items (extended car warranties, taxes) are exempt.
- Include recreational vehicles as “vehicles;
- Exempt from the rule “lot” loans, that is mortgages that are secured by real estate, but not a dwelling;
- Clarify securities are “personal property” so loans for the purpose of securities purchases are exempt;
- Allow covered borrowers to use car titles as security for a loan if the loan terms are more favorable, such as a lower MAPR;
- Apply the safe harbor regarding military status confirmation to inquiries made after loan application, but before loan consummation. Currently, the safe harbor only applies to inquiries made at the time of application or a short time prior to application;
- Encourage the DoD to fully implement the direct connection for military status inquiries by October 3, 2017, when the rule applies to credit card accounts,
- Allow oral disclosures to be provided in-person, over the phone, or through the internet. Currently, they may only be provided in-person or through an 800 phone number;
- Correct the MAPR calculation so annual fees are included in the MAPR only once, not 12 times;
- Exclude from the MAPR calculation participation fees up to $100, whether or not there is a balance. Currently, participation fees must be included in the MAPR (except under certain conditions for credit cards). If there is no balance and no calculation may be made, an annual fee up to $100 annual fee is permitted;
- Provide guidance on the meaning of “ancillary products.” Fees for ancillary products must be included in the MAPR. However, ancillary products is undefined;
- Permit covered borrowers to use remotely created checks for one-time payments made immediately after the borrower authorizes the transaction;
- Allow depository institutions to use the common law right of set-off on loans held by covered borrowers;
- Allow covered borrowers to obtain loans secured by a deposit account, such as a secured credit card;
- Provide creditors have no liability for violations if they correct the violations within 60 days of discovery and make appropriate adjustments;
- Clarify the loan is not void due to minor violations;
- Encourage the lenders to offer affordable small-dollar loans for covered borrowers and the public at large by excluding from the MAPR calculation application and participation fees do not exceed 25 percent of the amount of the credit; and
- Exempt credit cards from the regulation. The regulation’s provisions for credit cards are unworkable because creditors cannot know what fees are “bona fide” and reasonable in order to exclude them from the MAPR. The regulation may cause covered borrowers to lose access to valuable and popular credit card products. The statute was never intended to apply to mainstream loans. Rather it was targeting payday loans, title loans, and tax refund anticipation loans.
CBA will follow up with any feedback.