Each week, Mortgage Compliance Magazine “NewsLINEs” strives to bring you regulatory issues that directly affect mortgage lenders’ and mortgage servicers’ day-to-day. We depart this week by offering a brief discussion of one area of consumer compliance you may not have to stress about. Forewarned is forearmed.
You may have heard and read about the Military Lending Act (MLA). Generally, if your institution provides consumer credit to active duty service members, their family members, or dependents, you will likely have to comply with a final rule the Department of Defense (DOD) has issued establishing new requirements for most nonmortgage related consumer credit transactions (Final Rule).
The MLA applies to all extensions of consumer credit (both open- and closed-end) to a covered borrower except:
- Extensions of credit secured by an interest in a dwelling;
- Loans expressly intended to purchase a vehicle or other personal property that are secured by the vehicle or personal property being purchased;
- Loans that are exempt from Regulation Z (except for certain state-exempt loans); or
- Until October 3, 2017, credit card accounts under an open-end (not home secured) consumer credit plan.
If the loan to a covered member or a dependent of a covered member is for a consumer purpose, and it does not fit into one of the categories above, it will be subject to the MLA. Dwelling secured loans, including purchases, construction loans, refinances, HELOCs, and reverse mortgages are excluded. Regardless of the purpose of the loan, it is exempt from MLA if it is dwelling secured, and the dwelling does not have to be attached to real property.
According to the Consumer Financial Protection Bureau’s (CFPB) “Statement on the Military Lending Act Final Rule,” the MLA provides servicemembers and their dependents with specific protections for their “consumer credit” transactions. Among other protections, the law limits the annual rate on an extension of such credit to 36 percent, provides for military-specific disclosures, and prohibits creditors from requiring a servicemember to submit to arbitration in the event of a dispute. As initially implemented by the Department of Defense in 2007, the Military Lending Act protections applied to three narrowly-defined “consumer credit” products:
- closed-end payday loans for no more than $2,000 and with a term of 91 days or fewer;
- closed-end auto title loans with a term of 181 days or fewer; and
- closed-end tax refund anticipation loans.
The final rule amends the definition of “consumer credit” covered by the regulation to more closely align with the broad, traditional definition of credit covered by the Truth in Lending Act. The rule generally covers consumer credit offered or extended to active-duty servicemembers or their dependents, as long as the credit is subject to a finance charge or payable by written agreement in more than four installments.
In accordance with the statute, the MLA regulation continues to exclude residential mortgages and credit extended to finance the purchase of, and secured by, personal property, such as vehicle purchase loans. The Military Lending Act is implemented by the Department of Defense, and is enforced by the CFPB and other federal regulators.
What’s important about regulatory issues that mortgage loan lenders and servicers are not subject to? Well, a lot. For the time being, the MLA can be categorized into that seemingly small bucket of non-covered rules and regulations. At the same time, it can be logged on to the compliance watch list for any future changes that would require mortgage lenders and servicers to include the MLA in the Compliance Management System and address its requirements.
In the complex and burdensome regulatory environment of mortgage lending and servicing, we’d say that’s a bit of good news.
Around the Industry:
CFPB issues new arbitration rule to assist groups take companies to court.
On the Horizon:
CFPB publishes the top five consumer financial complaints reported in the U.S. What might it mean for your organization?
How would you describe your vendor management process? See this to compare.