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Financial Services Law Insights and Observations


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  • DoD changes interpretation of MLA related to Guaranteed Asset Protection contracts

    Agency Rule-Making & Guidance

    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 As a result, the DoD has withdrawn amended Q&A #2 from the 2017 Rule, and reinstated the 2016 Rule, which states that loans secured by “personal property” do not fall within the exception to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

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  • Federal banking agencies seek comments on proposal to revise regulatory capital rules

    Agency Rule-Making & Guidance

    On May 14, the Federal Reserve Board, FDIC, and OCC published a joint notice and request for comment on a proposal to revise regulatory capital rules to, among other things, identify which credit loss allowances are “eligible for inclusion in regulatory capital” under changes made to U.S. generally accepted accounting principles (U.S. GAAP), described within Accounting Standards Update No. 2016-13 (ASU 2016-13). The proposed rulemaking would provide (i) banking organizations subject to the agencies’ regulatory capital rules with “the option to phase in the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard;” (ii) amendments to certain regulatory disclosure requirements to reflect applicable changes to U.S. GAAP covered under ASU 2016-13; (iii) amendments to stress testing regulations, which would grant covered banking organizations that have adopted ASU 2016-13 an extension until the 2020 stress test cycle to “include the effect of ASU 2016-13 on their provisioning for purposes of stress testing;” and (iv) conforming amendments to other regulations referencing credit loss allowances. Comments must be submitted by July 13.

    Agency Rule-Making & Guidance Federal Reserve FDIC OCC GAAP

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