With recent changes in the regulations implementing the Military Lending Act (“MLA”), creditors are now reevaluating their compliance plans to ensure they are prepared for the new regulations. Although there is no formal guidance on what federal regulators will look for in reviewing MLA compliance, the commentary that accompanied both the proposed and final rule gives some insight as to where regulators will focus examination and enforcement resources. Below, we discuss some of these likely areas of focus, and offer suggestions for how institutions can prepare for regulatory scrutiny.
Determining military service and MLA safe harbor provisions
The MLA only applies to a “covered borrower,” which is either a servicemember (as defined under the MLA) or a servicemember’s dependent. The MLA provides two safe harbors to determine if a consumer is a covered borrower: (1) a set of results from the DoD’s MLA database, or (2) a military status indicator in a consumer report.
Although both of these approaches are optional—and a creditor may use a different method to determine if an individual is eligible for MLA protection—they provide several benefits. They are both determinative, so even if the borrower is in fact a servicemember a safe harbor check that shows otherwise will govern. Both checks can also be done without
inconveniencing the consumer or requiring them to attest to their military status.
However, these safe harbor approaches are only effective if the results are actually retained by the creditor. Since military status checks must be performed at origination, we recommend that the results of these checks be retained with the origination documents. Not only does the outcome of the military status check determine the substantive terms of the actual credit obligation, but by keeping all of these documents together, a creditor can ensure that they have all of the governing origination documents are in a single, secure location. Read more…