MLA - Dealership Corridor

Contributing Author:
Steve Roennau
Vice President
EFG Companies

In February, the Department of Defense (DOD) issued a statement regarding its interpretation of
the Military Lending Act (MLA). According to a filing in the Federal Register,

“The Department of Defense (Department) is amending its interpretive rule for the
Military Lending Act (the MLA). The MLA, as implemented by the Department, limits the military annual percentage rate (MAPR) that a creditor may charge to a maximum of 36 percent, requires certain disclosures, and provides other substantive consumer protections on “consumer credit” extended to Service members and their families. The Department is now withdrawing the amended question and answer number 2 (Q&A #2), published in the December 14, 2017 Interpretive Rule, which discussed when credit is extended for the purpose of purchasing a motor vehicle or personal property and the creditor simultaneously extends credit in an amount greater than the purchase price of the motor vehicle or personal property.” – federalregister.gov/d/2020-04041

This statement follows a joint petition, filed in January 2018 by the National Automobile Dealers Association (NADA) and the American Financial Services Association (AFSA), requesting the DOD to review the interpretation. When the DOD issued its 2017 interpretation, there was no public notice or opportunity for the NADA and other retail automotive trade associations to comment on the implications.

Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

Sighs of relief turned into sighs of frustration this past December when the Department of Defense (DOD) issued a new interpretation of the Military Lending Act (MLA), potentially resulting in severe implications for all dealers who sell or have sold vehicles to active duty members of the U.S. armed forces and/or their dependents.

It seems that even the holiday season can’t put the brakes on compliance initiatives. As of December 14, 2017, creditors providing credit-related products and services, like GAP, Credit Life, Credit Disability or cash-out financing, must now comply with a full range of duties and restrictions imposed by the MLA. While this interpretation didn’t go into effect until December, it applies to all transactions going back to October 3, 2016.

Dealers are now spending the first month of the new year consulting with their legal counsel to determine whether to continue to offer such products and services to active duty military consumers and their dependents, and if so, what actions must be implemented to comply with MLA requirements.

History of MLA

Congress passed the MLA in 2006 to help protect active duty service members and their dependents from predatory lending. Since 2015, the DOD has been slowly amending the final rule to expand the scope of the MLA to include the majority of closed and open-ended loans.