Defense Credit Union Issues


Military Lending Act (MLA)

The Department of Defense (DOD) issued its final 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, the DOD realized the value of payday loan alternatives offered by credit unions and included an exemption for the loans extended under NCUA’s Payday Alternative Loans  (PALS)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 Representatives Denny Heck (D-WA) and Steve Stivers (R-OH) was included in the FY 2016 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.

The rule went into effect on October 1, 2015, but only applies to consumer credit “consummated or established” on or after October 3, 2016. To account for additional complexities, credit cards were subject to a longer exemption period, delaying the compliance deadline until October 3, 2017. In August 2016, DOD issued an interpretive rule to provide “guidance on certain questions the Department has received regarding compliance with the July 2015 Final Rule.” In December 2017, DOD amended the 2016 interpretive rule. Unfortunately, even with the issuance of two interpretative rules, there are still many ambiguities within the MLA regulation. For more information on MLA compliance, please see NAFCU’s MLA Compliance Hot Topic webpage.

Servicemembers Civil Relief Act (SCRA)

The Servicemembers Civil Relief Act (SCRA), formerly known as the Soldiers' and Sailors' Civil Relief Act, 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 DOD that in many cases, SCRA violations 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.

Base Realignment and Closure (BRAC)

For the first time in several years, the Pentagon did not request BRAC authority from Congress for its 2019 budget. The last BRAC took place in 2005, and the BRAC 2005 Commission recommend that the next round of BRAC take place in 2015. However, lawmakers have been reluctant to vote for another BRAC round as it is politically unpopular and the 2005 BRAC round was costlier than expected.

While the timing in which Congress may grant BRAC authority is uncertain, 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.

Bureau of Consumer Financial Protection’s Office of Service-member Affairs (OSA)

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the CFPB, including the Office of Servicemember Affairs (OSA). As the CFPB’s servicemember webpage proclaims, the OSA “works to help military families overcome unique financial challenges by providing educational resources, monitoring complaints, and working with other agencies to solve problems faced by servicemembers.”