As of Oct. 3, 2016, hefty fines, lawsuits, imprisonment, and other penalties can be enforced if the new “Final Rule” of the Military Lending Act is not adhered to.
What is the MLA and what does the Final Rule update mean for service members?
To be clear, the MLA is not the Service member Civil Relief Act. Although the SCRA protects service members and their dependents, it only applies to pre-service debts. The MLA applies to currently serving active duty service members and their dependents (collectively known as “covered borrowers”). The original MLA protections applied to three “consumer credit” products. These products were closed-end pay day loans, closed-end auto title loans, and closed-end tax refund anticipation loans. Since 2007, the Consumer Financial Protection Bureau has taken numerous actions against lenders for violations of consumer financial protection laws and regulations that caused harm to service members and their dependents. However, many lenders found ways to get around the protections the original MLA put in place. In order to keep these lenders at bay, the Final Rule was created and will soon be implemented.
Final Rule protections extend to a wider range of credit products than the three originally mentioned. These include nearly all consumer credit extended to a covered borrower, as long as the credit is subject to a finance charge, or is payable by written agreement in more than four installments.
This means nearly 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 are being affected. However, there are exclusions on loans secured by real estate and purchase-money loans, such as loans to finance the purchase of a vehicle.
Other protections include a 36 percent cap on Military Annual Percentage Rate and new disclosures creditors must provide to covered borrowers. The following practices are also prohibited: mandatory arbitration clauses and other abusive practices (i.e., forcing service members and their dependents to waive their rights under the SCRA, etc.), requiring service members to provide payroll allotment as a condition of obtaining credits, and charging prepayment penalty, permitting refinance of payday loan, permitting credit to be secured using a post-dated, or use of vehicle title as security for a consumer credit obligation (as long as lender is not a chartered/licensed bank, savings association, or credit union).
Any violations of the Final Rule of the MLA can result in substantial consequences, including: 1) The refunding of fees/interest paid by borrowers, 2) Civil lawsuits are authorized attorney’s fees, and 3) Potential criminal penalties for creditors who violate the MLA.
The MLA, in addition to making wise financial choices, enhances service member's ability to be mission ready and to take care of their families. This article only scratches the surface on the new protections available. Service members can make their families less of a target for predatory lenders and stay current on benefits such as the MLA by stopping by the Airman & Family Readiness Center located across the street from the Cannon Clinic, or by calling (575)-784-4228, or contacting the Cannon Legal Office at (575)784-2211.