Important changes to the regulatory and supervisory framework governing loans to service members and their families have recently come into effect. On October 3, 2016, Department of Defense (“DoD”) revisions to its Military Lending Act (“MLA”) rule became effective for most types of credit products covered by the rule (the revised rule will go into effect for credit cards on October 3, 2017). Relatedly, on September 30, 2016, the Consumer Financial Protection Bureau (“CFPB”) released updated MLA compliance examination procedures to evaluate financial institutions’ compliance with the requirements of the revised DoD rule.
Generally speaking, the MLA imposes specific conditions on creditors that provide certain credit products to military service members and their dependents. These conditions include:
- A 36% cap on the loan or credit product’s Military Annual Percentage Rate (“MAPR”), which includes items such as finance charges, credit insurance premiums, and other types of fees;
- Prohibitions on mandatory arbitration clauses and mandatory waivers of certain statutory rights; and
- A requirement that certain disclosures be provided to certain borrowers.
The DoD’s revisions to the MLA rule included broadening the range of credit products subject to the MLA, modifications to the calculation of the MAPR, and modifications to the disclosures institutions are required to give to covered borrowers.
The CFPB’s updated examination procedures provide financial institutions with guidance on the requirements of the revised rule, and give insight as to how the CFPB will evaluate an institution’s MLA compliance. In announcing its updated examination procedures, the CFPB stated that early examinations will focus on “financial institutions’ compliance management systems and overall efforts to follow the rule’s requirements,” including reviewing institutions’ implementation plans, actions to update policies and procedures, training, and efforts to handle early implementation challenges.