Special Alert: Department of Defense Issues Interpretive Rule Regarding Compliance with the Military Lending Act

Today, the Department of Defense (“DoD” or “Department”) published in the Federal Register an interpretive rule regarding compliance with its July 2015 amendments to the regulations implementing the Military Lending Act (“MLA”). The July 2015 amendments will extend the MLA’s 36% military annual percentage rate (“MAPR”) cap, ban on mandatory arbitration, and other limitations to a wider range of credit products—including open-end credit—offered or extended to active duty service members and their dependents (“covered borrowers”). Compliance is mandatory beginning on October 3, 2016, except that credit card issuers have until October 3, 2017 to comply. Additional BuckleySandler materials on the MLA amendments are available here, here, and here.

DoD stated that the interpretive rule “does not substantively change the [July 2015] regulation implementing the MLA, but rather merely states the Department’s preexisting interpretations of an existing regulation” and thus is effective immediately upon publication. The DoD also emphasized that the guidance provided in the rule “represent[s] official interpretations of the Department….”

Click here to view the full Special Alert.

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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

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Credit Cards 2016: Consumer Protection in Focus

Manley-Williams captionValerie-Hletko caption 2The past year has seen heightened CFPB interest in the following areas: (i) deferred interest and rewards, (ii) limited English proficiency consumers, and (iii) the recent revisions to the Military Lending Act (MLA). Pursuing simplicity in the design of product features and closely following limited English proficiency issues will help credit issuers mitigate their regulatory risk. Also on the horizon in 2016 is the effective date of the MLA revisions, which were announced in July 2015.

Deferred Interest and Rewards

The Bureau has been focused on the marketing and design of deferred interest products and issued a strong admonition in September 2014 relating to the potential for consumer surprise.  However, there has been relatively little enforcement activity in this regard.  Instead, enforcement generally has focused on technical violations of law.  For example, an August 2015 consent order arose out of point-of-sale disclosures as opposed to the product features themselves. Some deferred interest issues, such as “old fashioned mistakes,” (e.g., “if paid in full” is dropped from the marketing copy) may represent low-hanging fruit for the CFPB and should be addressed to mitigate enforcement risk.  The Bureau has also expressed concern about technical issues that may complicate deferred interest for consumers, such as expiration of the promotional period prior to the payment due date.

The Bureau has suggested that consumers base their choice of credit card more on the nature and richness of the rewards than on the interest rate.  Accordingly, the Bureau has expressed concern about various aspects of rewards programs, including the expiration of points and complexity surrounding how they are earned and redeemed.  While simplicity may reduce regulatory risk, it undoubtedly makes rewards programs more expensive for issuers, and makes it more difficult for consumers to distinguish among them. Read more…

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Spotlight on the Military Lending Act, Part 2: Planning for Compliance

Andrew-Grant-captionManley-Williams-caption Ben-Olson-captionCompliance with the revised Department of Defense (“DoD”) regulations under the Military Lending Act (“MLA”) is not mandatory until October 3, 2016 or, for most credit cards, until October 3, 2017.  However, as the recent implementation of the Dodd-Frank Act mortgage regulations shows, a year or even two can pass quickly.  Therefore, institutions should begin planning now.  The following are answers to three key questions that can help you start the planning process.

  1. Which products will be covered by the revised MLA regulations?

The revised MLA regulations apply far beyond the narrow range of small dollar loan products covered today.  Instead, reflecting the DoD’s desire to match to the definition of consumer credit under the Truth in Lending Act’s Regulation Z, the MLA regulations will apply to credit offered or extended to a covered borrower that is:

  • Primarily for personal, family, or household purposes; and
  • Either subject to a finance charge or payable by a written agreement in more than four installments.

However, the following types of credit are excluded:

  • Residential mortgages: Transactions secured by an interest in a dwelling, including a transaction to finance the purchase or initial construction of the dwelling.
  • Secured motor vehicle purchase loans: Transactions that are expressly intended to finance the purchase of a motor vehicle and are secured by that vehicle.
  • Secured personal property purchase loans: Transactions that are expressly intended to finance the purchase of personal property and are secured by that property.
  • TILA-exempt transactions: Transactions that are exempt from Regulation Z (other than pursuant to a State exemption under 12 CFR § 1026.29) or otherwise not subject to disclosure requirements under Regulation Z.

Accordingly, the revised MLA regulations should not affect most mortgage, auto, or commercial lending.  The new regulations will, however, apply to most credit card accounts, overdraft or personal lines of credit, unsecured closed-end loans, and deposit advance products.  Therefore, institutions should focus on preparing the lines of business responsible for these products for compliance with the revised MLA regulations. Read more…

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Spotlight on the Military Lending Act: Did the Final Rule Improve on the Proposal?

Valerie-Hletko-captionBen-Olson-captionOn July 22, 2015, the Department of Defense (“Department”) released its final rule amending the regulations that implement the Military Lending Act (“MLA”), which means that a wider range of credit products—including open-end credit—offered or extended to active duty service members and their dependents (“covered borrowers”) will now be subject to the MLA and its “all-in” 36% military annual percentage rate (“MAPR”) cap.
Andrew-Grant-captionManley-Williams-captionSpecifically, the Department expanded the definition of “consumer credit” to be consistent with credit that is subject to the Truth-in-Lending Act (“TILA”)—credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and that is (i) subject to a finance charge or (ii) payable by a written agreement in more than four installments.

In response to the initial proposed rule, financial services industry stakeholders undertook a substantial effort to show how proposed modifications to the MLA regulations were overly broad and, in parts, inconsistent with the Department’s mandate under the MLA.  At a high level, industry comment letters fell into five categories: Read more…

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