On August 29, OCC Senior Deputy Comptroller Grovetta Gardineer delivered remarks at the 2016 Association of Military Banks of America Workshop, emphasizing the significance of banks’ compliance with the Servicemember Civil Relief Act (SCRA) and the Military Lending Act (MLA). Although Gardineer noted that SCRA-related issues have decreased since making SCRA compliance an examination focus, she stressed that room for improvement remains. Gardineer advised banks to perform due diligence with third-party vendors, noting that banks “will be held accountable for failures” by their third-party vendors. Gardineer further cautioned that, in light of the new MLA requirements taking effect on October 3, banks must ensure that they properly identify military borrowers entitled to the MLA’s expanded coverage, which will include “nearly all consumer credit covered under the Truth in Lending Act.”
On September 29, the Federal Reserve released the interagency examination procedures for the DOD’s Military Lending Act (MLA) final rule published in July of 2015. Also on September 29, the CFPB released its own examination procedures under the final rule, providing guidance as to how the CFPB will conduct reviews under what will be a broader scope of coverage under the MLA, including credit cards, deposit advance products, overdraft lines of credit (not traditional overdraft services), and certain types of installment loans. The final rule goes into effect on Monday, October 3 for most extensions of consumer credit to active duty servicemembers and their dependents.
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….”
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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.
On July 11, the OCC released its Semiannual Risk Perspective for Spring 2016, which generally provides an overview of supervisory concerns for the federal banking system and specifically presents data as of December 31, 2015 in the following areas: (i) operating environment; (ii) bank performance; (iii) key risk issues; and (iv) regulatory actions. Similar to the fall 2015 report, the current report identifies cybersecurity, third-party vendor management, business continuity planning, TRID, and BSA/AML compliance, among other things, as key areas of potential operational and compliance risk. Further, the report highlights the new Military Lending Act rule, effective October 3, 2016, as a new key potential risk. According to the report, the OCC’s supervisory priorities for the next twelve months will generally remain the same; moreover, the outlook for the OCC’s Large Bank Supervision and Midsize and Community Bank Supervision operating units will remain broadly similar.
100 Days Until the MLA: Compliance Challenges and Open Questions Before the New MLA’s Rule Implementation
With only 100 days until the new Military Lending Act (MLA) rule takes effect on October 3, 2016, many financial institutions have begun enacting procedures to ensure they are compliant with the new regulation by the effective date. With the implementation of this new rule, financial institutions continue to work towards full compliance with the requirements imposed by the Department of Defense (DoD), but there are growing pains. As this deadline draws near, there are several important compliance concerns that financial institutions must keep in mind and a number of issues where the industry is concerned about unclear language.
What types of credit are covered by the new MLA rule?
The 2007 MLA rule was limited to three specific types of products: payday loans, vehicle title loans, and refund anticipation loans. However, under the new rule, the MLA will cover a far broader range of products. The DoD sought to match the definition of credit under the Truth in Lending Act’s (TILA) implementing regulation—Regulation Z—so the new MLA rule will cover any credit that is (i) primarily for personal, family, or household purposes, and (ii) either subject to a finance charge under Regulation Z or payable by written agreement in more than four installments.
However, the new MLA rule excludes four specific types of transactions: Read more…