Defense Credit Union Issues

Military Lending Act 

The Department of Defense (DoD) issued its final Military Lending Act (MLA) regulation on July 22, 2015. The new regulation is a major expansion of the products covered by the previous rule. As stipulated in the proposed rule, the new regulation will apply a maximum 36 percent Military Annual Percentage Rate (MAPR) as well as additional written and oral disclosures to virtually all unsecured credit. Additionally, the rule places the burden of identifying covered servicemembers and dependents on lenders. Compliance lenders will now be required to identify the status of borrowers using DoD’s Defense Manpower Data Center (DMDC) MLA database. While few credit union products would violate the 36 percent MAPR, any covered credit products will still require additional written and oral disclosures.

Fortunately, NAFCU was able to secure some key changes in the final rule to help mitigate the impact of the regulation. After discussions, DoD realized the value of payday loan alternatives offered by credit unions and included an exemption for the loans extended under NCUA’s PAL Loan program. NAFCU also secured language that will ease the burden of disclosure requirements by allowing credit unions to comply with oral disclosures by including a toll free number on written disclosures.

Additionally, a NAFCU-backed amendment offered by Reps. Denny Heck (D-WA) and Steve Stivers (R-OH) was included in the FY2016 National Defense Authorization Act, requiring DoD to conduct a study on the capacity, accuracy and reliability of the DMDC MLA database. The provision also requires DoD to regularly consult with members of the financial services industry. NAFCU will monitor the work of DMDC as it prepares the MLA database for the 2016 compliance date.

DoD Military Lending Act Final Rule

NAFCU Final Regulation

NAFCU MLA Compliance Blog

DoD Military Lending Act Talking Points

Changing Environment

Financial services of all kinds provided to servicemembers have become a point of emphasis for consumer advocates. This combined with the efforts of CFPB's Office of Servicemember Affairs has raised awareness of the financial challenges facing servicemembers. This has had both positive and negative consequences.

The new focus on the financial services provided to those in the military has shown a light on the exemplary fashion in which defense credit unions serve the members of the military and their families. From the innovative ways credit unions are delivering financial education to providing safe short term credit products, defense credit unions are responding to the needs of servicemembers all around the world.

Unfortunately, the same focus on financial services for servicemembers has also led many with good intentions to pursue remedies to financial challenges facing servicemembers that could ultimately restrict access to products and services available to servicemembers.

Some of these issues came up during the FY2013 National Defense Authorization Act debate. Changes to both the Military Lending Act (MLA) and Servicemembers' Civil Relief Act (SCRA) were proposed in the legislation. While NAFCU did not actively oppose the great majority of the provisions, there were provisions that raised concerns. NAFCU voiced those concerns and they were addressed during the conference report stage of the process.

The conference report removed some troubling provisions in the Senate NDAA which include:

  • Requiring DoD to prescribe policy on all installment loans to servicemembers (under this proposal DoD could have placed any installment loans at your credit union under definition of consumer credit and subject them to the caps under the Military Lending Act).
  • Revising the definition of consumer credit to include vehicle title loans and payday loans for any duration whether they are open-end or closed-end credit (Still leaves DoD authority to include other products within definition).

Additionally, the conference report removed all the provisions in the House NDAA regarding the Servicemembers' Civil Relief Act (SCRA) which included:

  • Extending SCRA mortgage protections to:
    • servicemembers serving in combat areas and for a year after redeployment.
    • surviving spouses for a year after the servicemembers death.
    • totally disabled veterans for a year after the end of their service.
  • Requiring all financial institutions to designate a SCRA compliance officer.
  • Requiring all financial institutions above $10 billion in assets to maintain a toll free phone number.
  • Allowing servicemembers that are forced to relocate as a result of military service to refinance their mortgages at owner occupied rates.

The SCRA language included in the House bill and removed in conference had significant implementation problems, and it would have been costly and virtually impossible for credit unions to comply with the provisions. The proposals have since been revised and the implementation problems were addressed at the urging of the NAFCU. These same changes were included in the House version of the FY2014.

Some of the provisions that were ultimately included in the final conference report are changes to the Military Lending Act. These changes will:

  • Clarify a provision that states that servicemembers cannot be charged more than is allowed by state law for residents.
  • Require DoD to consult with financial regulators when first prescribing regulations and once every two years thereafter.
  • Add civil liability to list of penalties under MLA - including actual damage, appropriate punitive damages and appropriate equitable or declaratory relief (Provides safe harbor for bona fide errors).
  • Give enforcement authority for current MLA regulations to the CFPB and NCUA.


Congress passed the Budget Control Act of 2011, to force a compromise on budget cuts to ensure the fiscal stability of the country. This legislation contained a provision that would force across the board budget cuts, otherwise known as sequestration, for the Department of Defense as well as other agencies if Congress was unable to agree on compromise legislation to implement cuts of the same magnitude. Unfortunately, Congress was not able to come to a compromise and the harsh nonsensical budgets cuts were triggered on March 1, 2013.

The draconian budget cuts did not going into effect immediately. The cuts have been implemented on a gradual basis and the full effects of sequestration will not be felt until the middle of the summer.

To adjust for the draconian budget cuts imposed by the Budget Control Act, DoD initially proposed furloughing many of the 800,000 civilians it employs for a total of 22 days.

Fortunately, Congress passed, and the President signed into law on March 26, a compromise Continuing Resolution to fund the government through the rest of FY2013. Consequently, the fear of a government shutdown, in which servicemembers would be directly impacted, was alleviated. However, the Continuing Resolution did not resolve sequestration.

The Continuing Resolution did not remove the sequester cuts or replace them with more sensible cuts, it did allow for some flexibility with regard to how to implement the cuts. As a result, Defense Secretary Chuck Hagel has announced that the number of furlough days before the end of the fiscal year is being reduced from 22 days to 14 days, and the furloughs which were scheduled to begin in April will now not begin until the middle of June. The number of furlough days was revised once again to 11 days. DoD Comptroller Robert F. Hale, however, announced in a speech on April 1 that furloughs will not continue next fiscal year.

DoD civilian employees will face a financial hardship, and NAFCU recommends that credit unions provide assistance to your members affected.

Base Realignment and Closure (BRAC)

The Pentagon once again requested BRAC authority from Congress this year. The authority would be for a BRAC in 2017. The last BRAC took place in 2005, and the BRAC '05 Commission recommend that the next round of BRAC take place in 2015. In addition to this recommendation, the recent military funding cuts imposed by the Budget Control Act and the shift in overall military strategy are also driving forces behind the request for authority.

While the timing in which Congress may grant BRAC authority is uncertain at best, the Pentagon is preparing for a host of possible scenarios, as BRAC is likely to advance in the next few years. Credit unions with a significant military membership base should be aware of interaction between the Pentagon and Congress on this issue and begin to plan accordingly.

Consumer Financial Protection Bureau (CFPB) - Office of Servicemember Affairs

The Office of Service Member Affairs, which was established along with the CFPB by the Dodd-Frank law, has partnered with the Department of Defense to bolster financial education, address complaints and questions about financial issues, and work with federal and state agencies to strengthen consumer protection efforts for military families. Holly Petraeus, wife of General David Petraeus, is the head an office within the Consumer Financial Protection Bureau specifically focusing on military service members and families.

Petraeus previously served as director of the Better Business Bureau's Military Line program, a partnership with the Department of Defense Financial Readiness Campaign. In that position, Petraeus was responsible for providing consumer education to active and retired service members and their families. She also has experience as a volunteer leader in military family programs, working with local, state, and national legislators on issues affecting Army families.

Elizabeth Warren, special assistant to the president and advisor to the Treasury Secretary on the CFPB, said Petraeus' experience, which also includes being a military spouse for over 35 years, provides her with a special understanding of the "unique financial obstacles" that men and women in the armed forces face. Warren concluded that these qualifications make Petraeus "the perfect person to guide the establishment of the office."

In an effort to promote the partnership between the CFPB and military leadership, the CFPB and the Judge Advocate Generals of the all the branches and the Department of Defense released a Joint Statement of Principles on July 6th, 2011.

The Judge Advocate Generals and the CFPB, among other things, will work together to identify potential violations of federal consumer financial laws and establish a single point of contact within the CFPB's Enforcement Division that will allow members of the Judge Advocate Generals' Corps to share information on consumer complaints from servicemembers and military families. In addition, the Offices of the Judge Advocate Generals and the CFPB – including its Office of Servicemember Affairs and Enforcement Division – will create a formal working group with the goal of achieving a coordinated response to unlawful conduct targeted at servicemembers and their families.

The CFPB became operational on July 21, 2011

Servicemembers' Civil Relief Act (SCRA)

SCRA as amended October 2010

The Servicemembers Civil Relief Act(SCRA), formerly known as the Soldiers' and Sailors' Civil Relief Act (SSCRA), is a federal law that provides protections for military members as they enter active duty. It covers issues such as rental agreements, security deposits, prepaid rent, eviction, installment contracts, credit card interest rates, mortgage interest rates, mortgage foreclosure, civil judicial proceedings, automobile leases, life insurance, health insurance and income tax payments.

Several of the big banks have been involved in scandals in which they have violated the rights of servicemembers by foreclosing on their home while they were serving our nation both at home and in some cases abroad in combat areas. While we know that credit unions would never commit unscrupulous acts such as these, we have been told by Department of Defense that in many instances of SCRA violations they are committed unknowingly. At NAFCU, we are committed to keeping you educated on this important issue and potential changes that could be made to the statute. If you have questions, please do not hesitate to contact our compliance staff.

SCRA Overview

DMDC Active Duty Database

The campaign to build wealth and reduce debt could not be more timely. A healthy savings account and a low-to-no debt load is a military family's best approach to overcoming these challenging economic times. Military members' solid benefits and steady paychecks present them with a terrific opportunity to increase their savings and lower their debt each month.

Military Saves is a collaborative effort by the military services, the Department of Defense, non-profit organizations and associations, and financial institutions to provide both a favorable climate for saving money and the attractive accounts in which to save in. People buy what they are offered and Military Saves financial institutions offer military families the absolute best in savings and investment products. The quality and variety of products offered by defense credit unions gets bigger and better every year. In our third year of involvement with the campaign, we have expanded our scope and messaging. We would like to applaud our credit unions for matching our efforts with unbeatable incentives, returns, and member care.

The 2015 Military Saves Week was February 23- February 28

Other Resources

CULO Guide

Updated April 2016