The Defense Department today issued a final rule tightening restrictions on lending to service members. The rule expands the restrictions in the Military Lending Act — which principally targeted tax refund anticipation loans, payday loans and car title loans — to cover credit cards, lines of credit, installment loans and deposit advances offered to service members.
“We’re disappointed that today’s new rule expanding Military Lending Act regulations overreaches well beyond the abuses it was intended to fix,” said ABA President and CEO Frank Keating. “Its provisions will restrict the ability of banks to continue offering the popular financial products that military families want and need.”
One of ABA’s chief criticisms of the proposal was the massive compliance burdens it would impose on all banks by requiring lenders to screen all consumer credit applicants, except for mortgage and purchase money loans, for military status instead of relying on proactive statements by the customer. This would have required checking each applicant in a Pentagon-run database with frequent downtimes. The final rule does allow lenders to meet the requirement by verifying military status, if any, contained in credit reports. DoD estimated that complying with the rule could cost lenders $185-$259 million over a 10-year period.
The final rule adopts the proposed 36 percent “military” APR cap — an all-in APR that includes all fees, including application and annual fees. There are potential exclusions from the MAPR calculation for “bona fide” fees for credit cards and certain small-dollar loans. In line with ABA’s request for an extended compliance transition period, banks must comply with the final rule on Oct. 3, 2016. Open-ended credit accounts, such as credit cards, are exempt from the rule until Oct. 3, 2017. For more information, contact ABA’s Nessa Feddis.
