Answers on the Military Lending Act (MLA)

As the October deadline approaches for enacting the new Military Lending Act (MLA) regulation requirements, AuditLink has been fielding calls regarding the direction CU*Answers will be taking between now and the deadline. Since we’ve heard questions ranging from detailed (should I sign up for direct access) to introductory (what the heck is an MAPR), I thought it best that we address all the requirements, and where CU*Answers may or may not play a role.

There are two significant requirements within the new regulation; a requirement to check a member’s active status in the military, and verification that you are not charging active duty service personnel more than 36% using the new military annual percentage rate (MAPR).

The most pressing requirement is the check of active duty service during the loan origination process. Many credit unions are inquiring if CU*Answers will be scanning the database, in a similar fashion to the 314a scan, or if we will participate in the direct connection. At this time, it does not appear that the Department of Defense (DOD) database can be incorporated for a scan, as it was not designed to perform this type of verification.

CU*Answers participation in Direct Connect does not look promising at this time, although we continue to investigate our options. We have reached out to the Department of Defense and unfortunately the response we’ve received is that they are currently working only with financial institutions. It’s important to note that while the act requires credit unions to check the DOD database directly or indirectly, credit unions can also request a report from the three major consumer reporting agencies. However, Direct Connect access will be granted on a needs basis, and the DOD has not guaranteed that all financial institutions requesting will actually be granted access by the deadline. Remember, credit unions will still be able to check the status without the direct connection by accessing the database on a per loan basis, or by using the credit report to meet the Safe Harbor Provision.

We are currently researching the calculation of the MAPR requirement. The main difference between the MAPR calculation and the standard APR calculation is that the cost of credit insurance must be factored into the finance charge. Other upfront costs also come into play but credit insurance seems to be the one the DOD was targeting. If credit insurance is chosen, the credit union must then test the MAPR calculation and verify that it does not exceed 36%. In the event the percentage does exceed the limit, the interest rate on the loan must be adjusted accordingly. This is a requirement for both open and closed end loans. We have been in discussions with CUNA Mutual regarding these calculations and are currently evaluating the calculation for closed end loans. The open end loan calculation has not been fully cooked yet but we will be keeping an eye on that moving forward. This is in the research phase only and at this point we have not determined if this is something we are willing to take on in the near future.

As with many of the recent regulations, this one seems to be one of those that got a bit ahead of itself. To our knowledge, the database has not yet been built and many questions and interpretations are expected regarding the new calculation within the next eight months. We do have our hand on the pulse but will be moving cautiously as we are anticipating many changes and subsequent interpretations that may affect the final implementation of the act

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