The NAFCU Journal: The MLA Blindsides Again - The Rule’s Effect on Vehicle Lending

Compliance Central

Credit unions were hopeful that they were finally driving past the Military Lending Act’s (MLA) multiple speed bumps. However, the Department of Defense (DoD) issued its second interpretative rule in December 2017, placing further roadblocks and setting off more alarms in the popular area of vehicle lending.

Many credit unions use indirect lending partnerships to ensure their loans reach as many potential members as possible. These relationships are popular—a study shows that credit unions participating in indirect lending have vehicle loan portfolios comprising between 33 and 40 percent of indirect loans. Generally, these partnerships work in the following way: The credit union has an agreement with dealers whereby the credit union is the lender, and the dealer simply assists in closing the loan transaction. This type of arrangement can be best understood as a vendor relationship in which the credit union is ultimately responsible for compliance. Rules and regulations such as the MLA can have a severe impact on a credit union’s indirect lending relationship, as credit unions will ultimately own the loan along with any nasty compliance surprises.

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From the May-June 2018 issue of The NAFCU Journal magazine.