• Pentagon Proposes Amendments to Military Lending Regulations
  • October 10, 2014 | Author: Eric J. Dyas
  • Law Firm: Jones Walker LLP - Mobile Office
  • On Monday, September 29, the Department of Defense ("DOD") published in the Federal Register proposed amendments to its regulations implementing the Military Lending Act ("MLA"). The MLA, 10 U.S.C. § 987, and its implementing regulations, 32 C.F.R. Part 232, impose various limitations on creditors who extend certain types of credit to service members and their dependents. More specifically, the MLA regulations (i) limit to 36 percent the "Military Annual Percentage Rate" that may be charged in connection with certain types of consumer credit (e.g. payday loans, vehicle title loans and tax anticipation loans); and (ii) impose miscellaneous requirements and limitations on creditors making loans subject to the MLA (e.g. disclosure requirements, limits on the use of mandatory arbitration, etc.).

    The DOD's proposed amendments to the MLA regulations are not unexpected and are a byproduct of information gathered by the DOD in response to a 2013 Advance Notice of Proposed Rulemaking and surveys conducted by the DOD to evaluate the effectiveness of the MLA.

    Most importantly, the proposed amendments expand significantly the types of consumer credit transactions that are subject to the requirements of the MLA by defining "consumer credit" in a manner consistent with relevant provisions of the regulations implementing the Truth-in-Lending Act ("Reg Z"). As proposed, the regulation would define "consumer credit" to include credit offered or extended to a covered borrower primarily for personal, family, or household purposes and that (i) is subject to a finance charge, or (ii) is payable by a written agreement in more than four installments. Exceptions to the definition of "consumer credit" in the current regulation—residential mortgages, credit for the purchase of a motor vehicle that is secured by the motor vehicle, credit for the purchase of personal property that is secured by the personal property, and credit that is an exempt transaction for the purposes of Reg Z—have been retained in the proposed regulation.

    Other proposed changes to the MLA regulations include:

    • Permitting creditors access to the DOD's online database as a mechanism by which a creditor can conclusively and unilaterally determine whether a borrower is a covered borrower; and
    • Simplifying the information that a creditor is required to provide to a covered borrower when issuing credit to such borrower.