InfoBytes Blog

DoD changes interpretation of MLA related to Guaranteed Asset Protection contracts

On February 28, the Department of Defense (DoD) published an amendment to its December 2017 interpretive rule (2017 Rule) for the Military Lending Act (MLA) to withdraw a provision concerning the exemption of credit secured by a motor vehicle or personal property. As previously covered by InfoBytes, the 2017 Rule stated that additional costs may be added to an extension of credit so long as these costs relate to the object securing the credit, and not the extension of credit itself. In particular, the 2017 Rule stated that if credit is extended to cover “Guaranteed Auto Protection insurance or a credit insurance premium” the loan is covered by the MLA.

Following the publication of the 2017 Rule, the DoD received several requests to withdraw this Rule. The requests raised concerns that creditors “would be unable to technically comply with the MLA . . . because 232.8(f) of the [MLA] regulation would prohibit creditors from taking a security interest in the vehicle in those circumstances and creditors may not extend credit if they could not take a security interest in the vehicle being purchased.” The DoD stated that it found merit in these concerns and agreed that additional analysis is warranted. As a result, the DoD has withdrawn amended Q&A #2 from the 2017 Rule, and reinstated the 2016 Rule, which states that loans secured by “personal property” do not fall within the exception to “consumer credit” if the creditor “simultaneously extends credit in an amount greater than the purchase price.”

The amended interpretive rule is effective immediately.

Agency Rule-Making & Guidance Department of Defense Military Lending Act Auto Finance Safe Harbor GAAP Consumer Lending

Department of Defense updating data-sharing agreement with Department of Education to preserve servicemember benefit

On April 16, the Department of Defense (DoD) published a proposal in the Federal Register to amend its routine use policy to accommodate a new data-sharing agreement between DoD and the Department of Education (ED). The new agreement ensures that servicemembers with student loans under Part D, Title IV of the Higher Education Act of 1965 receive the “no interest accrual benefit” on eligible loans during the period in which they received imminent danger or hostile fire pay. Through the proposal and the new agreement, ED will be able to access information in the Defense Manpower Data Center Data Base to identify servicemembers eligible for “no interest accrual benefit.” The proposal will take effect after the comment period ends on May 16 “unless comments are received which result in a contrary determination.”

Federal Issues Student Lending Department of Defense Department of Education Servicemembers

FTC reports on certain 2017 enforcement activities to the CFPB

On May 17, in response to a request from the CFPB, the FTC transmitted a letter summarizing its 2017 enforcement activities related to Regulation Z (TILA), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Fund Transfer Act) for the CFPB’s use in preparing its 2017 Annual Report to Congress. The FTC highlighted numerous activities related to the enforcement of the pertinent regulations, including:

• Payday Lending. The FTC acknowledged the continued litigation against two Kansas-based operations and their owner for allegedly selling lists of counterfeit payday loan debt portfolios to debt collectors in violation of the FTC Act, previously covered by InfoBytes here.
• Military Protection. The FTC identified the July 2017 military consumer financial workshop and the launch of the new Military Task Force (previously covered by InfoBytes here and here) among the activities the agency engaged in related to protecting the finances of current and former members of the military. The FTC also noted continued participation in the interagency group working with the Department of Defense on amendments to its rule implementing the Military Lending Act.
• “Negative Option.” For actions under the Regulation E/EFTA, the FTC highlighted numerous “negative option” enforcement actions, in which the consumer agrees to receive goods or services from a company for a free trial option, but if the consumer does not cancel before the trial period ends, the consumer will incur recurring charges for continued goods or services. Among the actions highlighted is a case in which the FTC imposed a $179 million judgment (suspended upon the payment of $6.4 million) settling allegations that the online marketers’ offers of “free” and “risk free” monthly programs for certain weight loss and other products were deceptive.
• Auto Loans. The letter highlighted, among others, the FTC action against a Southern California-based group of auto dealerships that allegedly violated a prior consent order with the FTC by misrepresenting the cost to finance or lease a vehicle, previously covered by InfoBytes here.

Federal Issues FTC Act Payday Lending FTC Auto Finance Enforcement Military Lending Act Department of Defense CFPB TILA Consumer Leasing Act EFTA Congress

OCC updates Comptroller’s Handbook to include Military Lending Act booklet

On May 11, the OCC issued the “Military Lending Act” (MLA) booklet of the Comptroller’s Handbook. According to the announcement, the booklet reflects the 2015 Department of Defense amendments, as well as the interpretive guidance published in 2016 and updated in 2017 (covered by InfoBytes here and here), and applies to the examinations of OCC-supervised institutions that establish consumer credit products covered by the MLA. The booklet includes, among other things, (i) rules for determining fees and charges included in the calculation of the military annual percentage rate (MAPR); (ii) rules for calculating the MAPR; (iii) required disclosures to be provided to covered borrowers; and (iv) consumer credit limitations for covered borrowers.

Agency Rule-Making & Guidance OCC Military Lending Act Comptroller's Handbook Department of Defense

Department of Defense Updates MLA Interpretive Guidance; Addresses Timing for Safe Harbor Qualification

The Department of Defense (DoD) published a new interpretive rule (rule) under the Military Lending Act (MLA) on December 14.  This interpretive rule takes effect immediately, and it both amends and adds to the interpretive rule issued by DoD in August 2016 (previously covered by a Buckley Special Alert). In general, the rule contains the following updated interpretations:

• Exemption of Credit Secured by a Motor Vehicle or Personal Property. The rule provides additional guidance on the exemption covering purchase money-secured motor vehicle and personal property loans. Specifically, the rule states that additional costs may be added to an extension of credit so long as these costs relate to the object securing the credit, and not the extension of credit itself. For example, the rule explains that credit used to finance “optional leather seats,” “an extended warranty,” or “negative equity” in connection with the purchase of a motor vehicle will not cause the loan to be subject to the MLA.  However, the rule also states that, if credit is extended to cover “Guaranteed Auto Protection insurance or a credit insurance premium” or additional “cashout,” the loan is not eligible for the MLA exception.

• Security Interests in Covered Borrowers’ Accounts.  The rule addresses the ability of a creditor to take a security interest in a covered borrower’s account. Specifically, the rule states that a covered borrower may “convey security interest for all types of consumer credit” to a creditor, so long as the creditor complies with all other laws and the MLA rule.  Similarly, the rule notes that the MLA does not prohibit a creditor from exercising rights to take an otherwise-valid statutory lien on funds that have been deposited into a covered borrower’s account “at any time.”  However, the rule also emphasizes methods a creditor may not use to obtain payment from a covered borrower’s account, such as a “remotely created check.”

• Timing for Safe Harbor Qualification.  The rule provides additional clarity on when a creditor must check an applicant’s active duty status to obtain the MLA’s safe harbor. The rule states that an applicant’s covered borrower status should be determined when the applicant (i) initiates the transaction, (ii) submits an application to establish an account or during the processing of that application, or (iii) anytime during a 30-day period of time prior to such action.  In addition, the rule states that a covered borrower check can qualify for the safe harbor if it is performed “during the course of the creditor’s processing of that application for consumer credit.”

Agency Rule-Making & Guidance Department of Defense Military Lending Act Auto Finance

California Legislature Urges Congress to Request the Department of Defense Alter Criteria for Safe Harbor Provision in the MLA

On September 25, the California Legislature filed a joint resolution that urges Congress to impress upon the Department of Defense the need to realign their criteria requiring a social security number for the safe harbor provision in the Military Lending Act (MLA). The resolution noted that the revised MLA regulations requiring lenders to ask for a social security number, among other information from borrowers, may expose lenders to liability under the California Unruh Civil Rights Act. It further states that this provision of the MLA could unnecessarily burden many segments of California’s immigrant communities.

State Issues State Legislation Military Lending Act Department of Defense Safe Harbor

GAO Issues Report on Compliance with the SCRA Interest Rate Cap by Student Loan Servicers

On November 18, the GAO announced the release of its report and recommendations following the watchdog agency’s review of application of the SCRA’s rate cap by student loan servicers. According to the report, entitled Student Loans: Oversight of Servicemembers' Interest Rate Cap Could Be Strengthened, the number of servicemembers receiving the interest rate cap for their student loans has greatly increased since the Department of Education began requiring federal student loan servicers to automatically check the Department of Defense’s SCRA database to identify those who are eligible.

The report also identified several challenges commonly encountered by servicemembers seeking to take advantage of the rate cap, including:  (i) inaccurate SCRA information from the database; (ii) lack of a requirement that private loan servicers use the automatic eligibility check to identify eligible servicemembers; and (iii) lack of routine oversight of SCRA compliance for nonbank private student loan lenders and servicers. The GAO recommended, among other things, that the DOJ require private loan servicers to use the automatic eligibility check to identify eligible borrowers. The report also highlighted an issue with the Department of Education’s new borrower complaint system, which lacks the ability to track SCRA complaints systematically.

Federal Issues Consumer Finance Servicemembers Student Lending SCRA GAO Department of Education Department of Defense

As Part of Joint Initiative with the CFPB, FTC Launches Updated, Mobile-Friendly Military Consumer Website

On November 15, the FTC announced the launch of its new mobile-friendly “financial readiness” website, which is designed to help members of the military community navigate personal financial decisions in light of the unique challenges they face, such as frequent relocations and deployment. The website, which may be found at www.Military.Consumer.gov, is a collaborative effort of the FTC, DoD, CFPB and others.

Consumer Finance CFPB FTC Miscellany Department of Defense