By ABIA Outside Counsel, McIntyre & Lemon, LLC
In July 2015, the Department of Defense (DoD) amended its regulation governing consumer credit extended to military service members and their dependents. The regulation limits the APR on affected credit to 36 percent (called the Military APR, or MAPR). The revised regulation will affect some ABIA members, because, in calculating the MAPR, a creditor is required to include premiums for credit insurance and any fee for a debt cancellation contract or a debt suspension agreement — even if the product is offered on a voluntary basis. (Under Regulation Z, credit insurance premiums and fees for debt protection products need not be included in the calculation of the finance charge if certain conditions are satisfied, namely, that the purchase of the product is voluntary.) The compliance date for the amended rule is October 3, 2016.
The regulation obligates the creditor to determine whether a credit applicant is a covered borrower (a member of the military or a dependent), and it provides two “safe harbors” for a creditor to assess the borrower’s status: (1) by directly accessing the Military Lending Act Database, which is maintained by the DoD Defense Manpower Data Center; or (2) by using information obtained fom a major credit reporting agency, which will also have direct access to the Database. DoD is working with large lenders, such as the major banks, and the credit reporting agencies to enable them to search the MLA Database directly, including for a batch of names. Smaller lenders likely will use a credit reporting agency to identify the borrower’s status, instead of accessing the Database directly, because they will not be able to search the Database using a batch process.
Over the last several months, industry has been working with DoD to ensure the Database is technically able to satisfy search requests from the major lenders and the credit reporting agencies by the October 3 date, and ABIA has been involved in weekly calls with a coalition of lenders for updates from DoD on progress in implementing the Database. There remains some concern that the Database may not be able to fully satisfy demand for information when the compliance date arrives, but DoD has yet to delay the compliance date.
Additionally, DoD has stopped the weekly update calls while contracts with the credit reporting agencies are pending. Once the calls resume, ABIA will continue to participate.