June 14, 2012 – The Department of Defense would have authority to subject bank and credit union installment loans to the 36 percent annual percentage rate cap and other requirement of the Military Lending Act under the 2013 defense authorization bill.
As approved by the Senate Armed Services Committee, the bill would revise provisions of the MLA, which was enacted in 2007 to crack down on predatory practices targeting servicemembers. That law gives the DoD wide latitude in defining “creditor” and “consumer credit” for purposes of its implementing rule, except residential mortgages and auto-purchase loans are excluded from the rule.
The mortgage and auto-loan exemptions are unaffected by the defense measure. In its current form, the 2013 authorization bill would revise the MLA to:
include all vehicle title loans and payday loans – open-end and closed-end, regardless of duration – in the law’s definition of consumer credit and subject to rate limits and disclosures;
- require the Department of Defense to prescribe policy on installment loans (opening the inclusion of more loans in the consumer credit definition);
- clarify a rule that says servicemembers cannot be charged more than is allowed by state law for residents;
- require DoD to consult with financial regulators when prescribing regulation and once every two years after that;
- add civil liability to list of possible MLA penalties, including actual damages, appropriate punitive damages and appropriate equitable or declaratory relief (with a safe harbor for bona fide errors).
Quincy Enoch, NAFCU’s associate director of legislative affairs and military liaison, said that once passed by the Senate, the bill would go to a House-Senate conference that would resolve differences between the above measure and the House-passed bill.
He said NAFCU is monitoring progress on this bill and will work closely with DoD on any changes enacted that affect credit unions.