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September 26, 2014

With DoD proposal, NAFCU urges NCUA review of 'finance charge'

NAFCU Director of Regulatory Affairs Mike Coleman on Friday urged NCUA to consider altering its treatment of "finance charge" to prevent unintended consequences from a Defense Department Military Lending Act proposal, which would apply a 36 percent rate cap to more products.

Current MLA rule protections extend to closed-end payday loans for no more than $2,000 and with a term of 91 days or fewer, closed-end auto title loans with a term of 181 days or fewer, and closed-end tax refund anticipation loans. The proposal would amend the definition of "consumer credit" to more closely match the definition under the Truth in Lending Act, covering more credit products.

In a letter to NCUA Chairman Debbie Matz, Coleman asked that NCUA consider revising how it defines finance charges as they relate to the federal credit union loan-rate ceiling and the cap on rates charged for short-term, small amount loans, which are called payday alternative loans. He said the DoD proposal could affect credit unions' ability to provide credit products to servicemembers.

"NAFCU strongly supports consumer financial protections for our nation's servicemembers, and credit unions have a proven track record of protecting the interests of their members," Coleman wrote. "However, NAFCU will work to ensure that there are no unintended consequences with the changes proposed to the definition of consumer credit which would prevent credit unions from providing essential credit products to members who serve in the military."

(NAFCU Senior Vice President of Government Affairs and General Counsel Carrie Hunt made a similar point in a Wall Street Journal article Friday.)

Matz raised concerns about the DoD proposal Friday. In a statement, she said NCUA "strongly supports protecting all consumers from predatory lending while ensuring they have access to affordable credit." However, she said NCUA's payday lending alternative rule was crafted with the existing MLA regulations in mind. DoD's proposed MLA rule change "would broaden the definition of ‘consumer credit' under Military Lending Act regulations in a way that would prevent federal credit unions from making payday alternative loans permitted by our rule," she said.

NAFCU has worked extensively with the DoD and CFPB on financial issues affecting servicemembers, whom credit unions have a long history of serving. NAFCU is committed to helping address practices such as the MLA violations shown in a DoD report in June.

The MLA protections do not cover residential mortgages or credit extended for secured personal property purchases or for vehicle purchase loans secured by an interest in the vehicle. DoD's is not proposing to change that.

NAFCU will continue to work with stakeholders and to monitor this issue for its potential effect on servicemembers and the credit unions serving them.