Tag: MLA

This article was updated on March 7, 2024. Like so many government agencies, the U.S. military is a source of many acronyms. Okay, maybe a few less, but there really is a host of abbreviations and acronyms attached to the military – and in the regulatory and compliance space, that includes SCRA and MLA. So, what is the difference between the two? And what do financial institutions need to know about them? Let’s break it down in this basic Q&A. SCRA and MLA: Who is covered and when are they covered? The Servicemember Civil Relief Act (SCRA) protects service members and their dependents (indirectly) on existing debts when the service member becomes active duty. In contrast, the Military Lending Act (MLA) protects service members, their spouses and/or covered dependents at point of origination if they are on active duty at that time. For example, if a service member opens an account with a financial institution and then becomes active military, SCRA protections will apply. On the other hand, if the service member is of active duty status when the service member or dependent is extended credit, then MLA protections will apply. Both SCRA and MLA protections cease to apply to a credit transaction when the service member ceases to be on active duty status. What is covered? MLA protections apply to all forms of payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards. However, MLA protections exclude loans secured by real estate and purchase-money loans, including a loan to finance the purchase of a vehicle. What are the interest rate limitations for SCRA and MLA? The SCRA caps interest rate charges, including late fees and other transaction fees, at 6 percent. The MLA limits interest rates and fees to 36 percent Military Annual Percentage Rate (MAPR). The MAPR is not just the interest rate on the loan, but also includes additional fees and charges including: Credit insurance premiums/fees Debt cancellation contract fees Debt suspension agreement fees and Fees associated with ancillary products. Although closed-end credit MAPR will be a one-time calculation, open-end credit transactions will need to be calculated for each covered billing cycle to affirm lender compliance with interest rate limitations. Are there any lender disclosure requirements? There is only one set of circumstances that triggers SCRA disclosures. The Department of Housing and Urban Development (HUD) requires that SCRA disclosures be provided by mortgage servicers on mortgages at 45 days of delinquency. This disclosure must be provided in written format only. For MLA compliance, financial institutions must provide the following disclosures: MAPR statement Payment obligation descriptions Other applicable Regulation Z disclosures. For MLA, it is also important to note that disclosures are required both orally and in a written format the borrower can keep. How Experian can help Experian's solutions help you comply with the Department of Defense's (DOD's) final amendment rule. We can access the DOD's database on your behalf to identify MLA-covered borrowers and provide a safe harbor for creditors ascertaining whether a consumer is covered by the final rule's protection. Visit us online to learn more about our SCRA and military lending act compliance solutions. Learn more

With the Oct. 3, 2016 compliance date upon us, many lenders continue to debate how they would like to solve for the Military Lending Act (MLA). With new enhancements, more protections have been granted to members of the military and their dependents when it comes to “consumer credit” products, specifically around the 36% cap on the MAPR. The key then becomes how to identify these individuals. At origination, how can the lender know if an individual is a member of the military, or a service member’s dependent? The answer, of course, lies in verification. Under the new Department of Defense (DOD) rule, lenders will have to check each credit applicant to confirm that they are not a service member, spouse, or the dependent of a service member.  The final rule includes a “safe harbor” from liability for lenders who verify the MLA status of a consumer through a nationwide Credit Reporting Agency (CRA) or the DOD’s own database, known as the DMDC. Obviously, lenders will want to have this “safe harbor,” so the question becomes do you opt for the direct or indirect solution? The direct solution is to have the lender access the DMDC on their own. With this option, expected turnaround time is 24 hours for batch searches. The DMDC expects the volume of searches to their servers to increase from 220 million a week to 1.9 billion a week. For some, this feels like a more manual process, but it can be done. The indirect solution involves the CRA accessing the DMDC data on the lender’s behalf. In Experian’s case, this would translate into lenders seeing the MLA indicator on the credit report at point of origination or making a call out for just the MLA indicator. The process is integrated into the credit-pull cycle, so no manual effort is required on the lender’s end. MLA status is simply flagged. The rule also permits the consumer report to be obtained from a reseller that obtains such a report from a nationwide consumer reporting agency. Required data to perform a search includes full legal name, address, social security number and date of birth. This applies to both the credit report add-on and Experian’s standalone solutions. If any of this data is missing from the inquiry, Experian is unable to perform the MLA search. Credit card lenders have until Oct. 3, 2017 to adhere to the new standards, but all other applicable lenders must act now and build out their compliance standards and solutions. Direct or indirect? That is the question. To learn more about MLA or how Experian can help, visit our dedicated-MLA site.

Tick-tock. Tick-tock. Lenders are just weeks away from the required Military Lending Act compliance date of Oct. 3, yet many are scrambling to find a solution. In fact, officials with CUNA and the American Bankers Association said they were still confused by the rules, and requested a six-month extension from the Department of Defense for compliance. Card holders have until Oct. 3, 2017 to comply, but others are trying to navigate what the rule means and how to introduce new practices to protect and serve military credit consumers. What are the top questions still circulating about this key piece of regulation? Here are a few we’ve been tracking, along with some responses to assist with this shift in compliance. 1. What types of accounts are covered under the Military Lending Act (MLA)? It initially applied to three narrowly-defined “consumer credit” products: Closed-end payday loans; Closed-end auto title loans; and Closed-end tax refund anticipation loans. The new rule, issued in 2015 by the Department of Defense, expands the definition of “consumer credit” covered by the regulation to more closely align with the definition of credit in the Truth in Lending Act and Regulation Z. This means MLA now covers a wide range of credit transactions. It does not apply to residential mortgages and credit secured by personal property, such as vehicle purchase loans. 2. Who are the covered borrowers under the MLA? The DMDC database identifies individuals who meet one of the following criteria: Is on active duty Regular or reserve member of the Army, Navy, Marine Corps, Air Force, or Coast Guard, serving on active duty under a call or order that does not specify a period of 30 days or less, or such a member serving on Active Guard and Reserve duty as that term is defined in 10 u.s.c. 101 (d)(6) The member’s spouse The member’s child defined in 38 USC 101(4), or An individual for whom the member provided more than one-half of the individual’s support for 180 days immediately preceding the extension of consumer credit covered by 32 C.F.R. Part 232 The flag returned from DMDC will not specifically identify the active duty military member, but it will flag if the applicant is a covered borrower. 3. How is MAPR calculated? What additional fees are included? The MAPR includes interest, fees, credit service charges, credit renewal charges, credit insurance premiums and other fees for credit-related products sold in connection with the loan. You should work with your legal/compliance teams for MLA restrictions and applicability. 4. What is the difference between the Servicemembers Civil Relief Act (SCRA) and the Military Lending Act (MLA)? Both regulations are designed to protect U.S. service members and their families, but each focus on different areas. SCRA has been around for decades and was designed to temporarily suspend judicial and administrative proceedings and transactions that may adversely affect service members during their actual military service. In fact, if a service member has a debt before he or she joined the active military service, they can have the interest rate reduced to 6 percent, upon request. If the loan is a mortgage, that rate can also be reduced for the duration the member is in the military, plus one year. Other loans are only reduced for the duration the member is on active duty. MLA, on the other hand, is focused solely on providing specific protections for active duty service members and their dependents in certain consumer credit transactions. It was introduced in 2007, but strengthened in 2015. Specifically, it limits APR to 36 percent on covered products, which was recently expanded to include closed-end payday loans, closed-end auto title loans and closed-end tax refund anticipation loans. Unlike SCRA, where the responsibility to activate these protections falls on the service member, MLA requires creditors to verify active duty status and dependents at origination. 5. Explain the difference between accessing MLA status directly versus indirectly. The Final Rule permits a creditor to use information obtained directly from the Department of Defense’s Database. Information can also be obtained from a nationwide consumer reporting agency to determine whether a consumer applicant is a covered borrower. When working with Experian, the one-stop solution will entail outputting the MLA indicator on the credit report at point of origination. We anticipate this solution will be available in fall 2016. --- Not much is known about what the punishments or fines will look like for infractions, but now is the time to start reviewing business governance and procedures that support compliance. To learn more about MLA and to access an on-demand webinar with industry experts, visit our site.

Time to dust off those compliance plans and ensure you are prepared for the new regulations, specifically surrounding the Military Lending Act (MLA). Last July, the Department of Defense (DOD) published a Final Rule to amend its regulation implementing the Military Lending Act, significantly expanding the scope of the existing protections. The new, beefed-up version encompasses new types of creditors and credit products, including credit cards. While the DOD was responsible for implementing the rule, enforcement will be led by the Consumer Financial Protection Bureau (CFPB). The new rule became effective on October 1, 2015, and compliance is required by October 3, 2016. Compliance, however, with the rules for credit cards is delayed until October 3, 2017. While there is no formal guidance yet on what federal regulators will look for in reviewing MLA compliance, there are some insights on the law and what’s coming. Why was MLA enacted? It was created to provide service members and their dependents with specific protections. As initially implemented in 2007, the law: Limited the APR (including fees) for covered products to 36 percent; Required military-specific disclosures, and; Prohibited creditors from requiring a service member to submit to arbitration in the event of a dispute. It initially applied to three narrowly-defined “consumer credit” products: Closed-end payday loans; Closed-end auto title loans; and Closed-end tax refund anticipation loans. What are the latest regulations being applied to the original MLA implemented in 2007? The new rule expands the definition of “consumer credit” covered by the regulation to more closely align with the definition of credit in the Truth in Lending Act and Regulation Z. This means MLA now covers a wide range of credit transactions, but it does not apply to residential mortgages and credit secured by personal property, such as vehicle purchase loans. One of the most significant changes is the addition of fees paid “for a credit-related ancillary product sold in connection with the credit transaction.”  Although the MAPR limit is 36 percent, ancillary product fees can add up and — especially for accounts that carry a low balance — can quickly exceed the MAPR limit. The final rule also includes a “safe harbor” from liability for lenders who verify the MLA status of a consumer. Under the new DOD rule, lenders will have to check each credit applicant to confirm that they are not a service member, spouse, or the dependent of a service member, through a nationwide CRA or the DOD’s own database, known as the DMDC. The rule also permits the consumer report to be obtained from a reseller that obtains such a report from a nationwide consumer reporting agency. MLA status for dependents under the age of 18 must be verified directly with the DMDC. Experian will be permitted to gain access to the DMDC data to provide lenders a seamless transaction. In essence, lenders will be able to pull an Experian profile, and MLA status will be flagged. What is happening between now and October 2016, when lenders must be compliant? Experian, along with the other national credit bureaus, have been meeting with the DOD and the DMDC to discuss providing the three national bureaus access to its MLA database. Key parties, such as the Financial Services Roundtable and the American Bankers Association, are also working to ease implementation of the safe harbor check for banks and lenders. The end goal is to enable lenders the ability to instantly verify whether an applicant is covered by MLA by the Oct. 1, 2016 compliance date. --- If you have inquiries about the new Military Lending Act regulations, feel free to email MLA.Support@experian.com or contact your Experian Account Executive directly. Next Article: A check-in on the latest Military Lending Act news