Join Trades Comment Letter, Proposed Changes to MLA Regulations, DOD

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Proposed changes to the Military Lending Act Regulation Department of Defense RIN 0790-AJ10 79 Federal Register 58601 (September 29, 2014)


Dear Sir or Madam: 

The Associations1 appreciate the opportunity to comment on the Department of Defense (Department) proposal to amend their regulations that implement the Military Lending Act (MLA). As expressed in our letter on August 1, 2013, responding to the Department of Defense’s Advanced Notice of Proposed Rulemaking (ANPR) requesting comment on possible revisions to the MLA regulations, the Associations have worked closely with the Department over the years to ensure appropriate safeguards are in place to protect servicemembers and their spouses and dependents from engaging in specific financial transactions the Department considers harmful, while at the same time avoiding prohibitions that might segregate servicemembers and their spouses and dependents or deny them access to needed and beneficial mainstream credit products. We honor the service and sacrifice made by the members of our armed services and their families and will continue to work collaboratively with the Department to ensure servicemembers as well as their families at all stages of their careers have appropriate access to credit and to the tools and skills necessary to make informed decisions about financial products and services. 

The MLA authorizes the Department to issue regulations fundamentally to protect servicemembers of all ranks, as well as their spouses and dependents, from certain financial transactions deemed to be predatory. Passed in 2006, the statute was intended to target specific loans considered under the legislation to be predatory: payday loans, vehicle title loans, rent-to-own programs, refund anticipation loans, and military installment loans. Consistent with that goal, the Department adopted a regulation that prohibits access by servicemembers and their spouses and dependents to payday or car title loans of short duration with high fees. The express purpose of these requirements is to prevent military households from being trapped in exorbitant short-term debt that would be so onerous as to impose financial hardship on the family, thereby undermining the focus of serving personnel and impairing military readiness.

The Department has proposed a new set of requirements to address two problems that may have developed since the first set of implementing regulations, namely, products designed specifically to evade the earlier regulations falling just outside of the existing product parameters, and the possibility that some covered borrowers are not disclosing their military status to financial service providers. The Department proposes taking two actions:

  • Significantly expanding the provisions of MLA to mainstream financial products that are not covered by the original regulations2 and that, under the proposal, would become off-limits to servicemembers and their spouses and dependents. This expansion would include credit cards, student loans, overdraft lines of credit, personal lines of credit and installment loans, car and other secured refinance loans, and some mortgage loans (“consumer credit”).3
  • Shifting the responsibility to identify their military status from servicemembers and their spouses and dependents to lenders by compelling lenders to screen all applicants to determine their military status or relationship to someone who serves.

The purpose of the MLA as passed was generally accepted and, as initially implemented, was careful to focus narrowly on a set of products not then subject to federal regulation. Today all of these products are subject to the plenary authority of the Bureau of Consumer Financial Protection (Bureau), which is charged with regulating payday and vehicle title lenders, as well as other consumer financial products, for the benefit of all Americans. Where there are improprieties, for servicemembers or for the general population, the Bureau has authority to step in. This change in the financial regulatory landscape points to our concern that the Department needs to take care that additional MLA regulation not fundamentally eliminate individual choice of legitimate and valuable financial products for servicemembers nor preclude servicemembers of all ranks and their privately employed spouses from selecting mainstream financial services available to the public at large. Similarly, in its efforts to address concerns it feels are important for servicemembers, the Department should avoid subjecting the general public to a universal screening process in its desire to ensure that military families are fully covered by the MLA (even where servicemembers wish to avoid that coverage). Our military and their families make many sacrifices for their service to the country. We believe that the proposed regulations, rather than helping these men and women, would as written, actually work to deny them mainstream financial products and would do so in the absence of a demonstrable adverse impact on our national military readiness. That need not be another sacrifice imposed on them.

We strongly urge the Department to reconsider the breadth and substance of the proposal. We make the following observations and recommendations:

  • The regulation should protect military personnel and their spouses and dependents, but it should not deprive them of valuable and beneficial mainstream products or inhibit the availability and development of new products in general– including affordable small-dollar loans.
  • The proposal is not a cap on the rate of interest, but in fact is a new “military annual percentage rate” (MAPR) cap.4 Unlike the credit cost measurements of Regulation Z, which implements the Truth in Lending Act, and state usury laws, the complicated new military annual percentage rate calculation inflates and distorts the cost of credit. The 36 percent MAPR cap captures a broad swath of consumer credit including credit cards and small-dollar affordable loans. It captures, for example, even a credit card with a 0 percent interest rate.5
  • The proposal prohibits certain other terms, including vague but key terms the proposed regulation does not define, and it fails to recognize the significant impact the prohibition of those terms will have on the ability of depository institutions to provide a compliant consumer loan to servicemembers and their spouses and dependents.
  • The proposal’s prohibition against pre-dispute arbitration agreements means that servicemembers and their spouses and dependents may lose that option as a means to resolve any dispute. This fair and typically quicker alternative to litigation is particularly convenient to servicemembers who are deployed away from their civilian home or abroad, where they lack access to courts.
  • The proposed regulation presents risks and costs for all depository institutions, even if they were able to ensure that their products comply with the regulation.
  • If the regulation is expanded as proposed, the greatly increased volume of inquiries to the Department’s database, which today is frequently unavailable, will cause consumer credit lending to come to a halt when the database is unavailable.
  • The Department should expand coverage as needed to address efforts at evasion, but in a targeted fashion, consistent with the history and intent of the legislation. It should exempt depository institutions from the regulation, including the MAPR component, to ensure military personnel and their spouses and dependents continue to have access to mainstream products. The Department has not identified any data or support to show that products offered by depository institutions, including credit cards, have the characteristics of the predatory loans Congress and the Department intended to target or that they are the source of problems for military personnel and their spouses and dependents. Moreover, depository institutions are regularly examined for compliance with consumer protection laws, and banking agencies have exhibited their willingness and aggressiveness in addressing depository institution products they believe may be harmful to consumers, particularly military customers.
  • The Department grossly underestimates the costs of the proposal. It underestimates not only the costs of the minimum and limited cost factors it has identified, but it also overlooks significant expenses associated with other provisions of the proposal that the Department has claimed will have a minimal cost impact. By overlooking many of the products that the proposal covers, it misses the cost implications and compliance complications for all depository institutions of all sizes.



American Bankers Association

Independent Community Banks of America

Association of Military Banks of America

National Association of Federal Credit Union

Consumer Bankers Association


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