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How changes to the Military Lending Act impact dealers

Steve Dodds of Garage Composites discusses how the sale of Gap and other credit-related products could be limited to military members covered under the lending act

On Dec. 14, the Department of Defense (DOD) amended its Interpretive Rule for the Military Lending Act (MLA).

Who is covered by the MLA?

A covered borrower is a consumer who, at the time the consumer becomes obligated on a consumer credit transaction or establishes an account for consumer credit, is a covered member of the armed forces or a dependent of a covered member (as defined in 32 CFR 232.3(g)(2) and (g)(3)).

Covered members of the armed forces include members of the Army, Navy, Marine Corps, Air Force, or Coast Guard currently serving on active duty pursuant to title 10, title 14, or title 32 of the U.S. Code under a call or order that does not specify a period of 30 days or fewer, or such a member serving on Active Guard and Reserve duty as that term is defined in 10 U.S.C. 101(d)(6).

The term dependent refers to a covered member’s:

• Spouse;

• Children under age 21;

• Children under age 23 enrolled full-time at an approved institution of higher learning and dependent on a covered member (or dependent at the time of the member’s or former member’s death) for over one-half of their support; or

• Children of any age incapable of self-support due to mental or physical incapacity that occurred while a dependent of the covered member under the preceding two bullets and dependent on a covered member (or dependent at the time of the member’s or former member’s death) for over one-half of their support.

Other relationships may also qualify an individual as a dependent of a covered member. Paragraphs (E) and (I) of 10 U.S.C. 1072(2) reference other relationships that qualify individuals as dependents under the MLA.

Website to check MLA covered people: https://mla.dmdc.osd.mil/mla/#/single-record

What are the restrictions that most affect our industry?

·       Limits the sale of Gap and other credit-related ancillary products such as credit life or credit health

·       Limits the max APR to 36% for all covered individuals

·       Puts a probation on enforcement of a pre-dispute arbitration agreement

If you would like to review the entire text of the MLA or the new interpretation, you can click on the links below.

Link to full text for Military Lending Act: https://www.fdic.gov/regulations/compliance/manual/5/v-13.1.pdf

Link to amended interpretation released Dec. 14, 2017: https://www.gpo.gov/fdsys/pkg/FR-2017-12-14/pdf/2017-26974.pdf

This situation is currently evolving and is expected to be commented on and possibly challenged. Garage Composites will release updates as they become available.