Department of Defense (DoD) Leases
Credit unions enjoy nominal lease space in federal buildings and on military bases from a provision in the Federal Credit Union Act. Military banks have been trying for years to get their own nominal lease provision.
In 2019 Senate version of the FY 2020 NDAA contained a provision that would require DOD to treat all for-profit banks the same as not-for-profit credit unions when it comes to land leases. This could have led to a situation where DoD would opt to not provide nominal leases to any financial institution, rather than be forced to provide them to mega-banks. However, the House version contained no such provision. Thanks to NAFCU’s advocacy and the grassroots efforts of credit unions across the country, the problematic provision was removed from the final FY 2020 NDAA, which President Trump signed into law in December 2019.
In 2020, the Senate version of the FY 2021 NDAA, S. 4049, once again had a similar provision requiring DoD to treat banks and credit unions the same. The House version of the NDAA, H.R. 6395, once again does not contain the problematic provision. Both chambers are expected to meet throughout the Fall of 2020 in an effort to get a final FY 2021 NDAA bill by the end of 2020. NAFCU will remain active in opposing the Senate amendment once again.
Military Lending Act (MLA) Supervision
Under Acting Director Mulvaney, the Consumer Financial Protection Bureau (CFPB) stopped conducting routine supervisory examinations for Military Lending Act (MLA) compliance as Mulvaney called into question the CFPB’s statutory authority to enforce the MLA. Director Kraninger has taken the same position, calling for Congress to give the CFPB the clear authority to conduct supervisory examinations for MLA compliance. However, the CFPB will continue to exercise its enforcement powers for violations of the MLA based on complaints received through its website and consumer response channels.
The National Credit Union Administration (NCUA) also examines credit unions for MLA compliance. In 2017, the NCUA made high-level reviews of MLA policies and procedures a supervisory priority.
Guaranteed Acceptance Protection (GAP) Insurance
In 2017, in an attempt to provide clarification, DOD amended Question and Answer #2 (Question #2) of its 2016 Interpretive Rule in such a way that it virtually prohibits access to GAP insurance when the MLA covered borrower tries to finance the GAP insurance with the loan used to purchase the vehicle. By limiting the availability of GAP insurance, Question #2 has the potential to cause significant financial hardship as GAP insurance is a protection against situations where a borrower’s vehicle is destroyed or stolen and the value of the car is less than the remaining loan balance. The MLA Interpretive Rule has caused many credit unions and their vendors to no longer offer this product to servicemembers and their families.
In February 2020, DOD published an interim final rule to amend the previous interpretation of the MLA. DOD’s new interpretation rescinds Question and Answer #2 (Q&A #2) as it appears in DOD’s 2017 interpretive rule and reverts to its 2016 interpretation. DOD’s decision to revert Q&A #2 back to the agency’s original interpretation, issued on August 26, 2016 (August 2016 Interpretive Rule), lifts restrictions on financing guaranteed asset protection (GAP) insurance in connection with a credit transaction involving a motor vehicle purchase. Additionally, DOD’s new interpretation created a new Q&A #21 in response to inquiries regarding the use of an Individual Taxpayer Identification Number (ITIN) for determining covered borrower status. DOD’s reverting of Q&A #2 to its original interpretation will provide time to “conduct additional analysis.” Additional information can be found in NAFCU’s Regulatory Alert.
Many credit unions are concerned about DOD's interpretation of when a vehicle purchase loan may be a covered loan under the MLA impacts their auto lending and indirect loan programs. If a vehicle loan is an MLA covered loan, this can be problematic for many auto loans originated through indirect lending programs, particularly where the dealer originates the loan, because the MLA prohibits most lenders from taking a security interest in a motor vehicle. The uncertain status of secured vehicle loans originated by a dealer and sold to a credit union has been left unaddressed by the DOD.