Credit union regulator outlines changes made to Military Lending Act interpretive rule in February

A change in an interpretive rule for lending to members of the military is outlined in a “letter to credit unions” issued by their federal regulator Wednesday, nearly three weeks after the change was made.

According to the National Credit Union Administration’s (NCUA) letter, on Feb. 28 the Department of Defense (DoD) amended its interpretive rule for the Military Lending Act (MLA) regulation. The MLA is meant to protect active-duty service members and their covered dependents from predatory lending practices. It established an interest rate cap of 36% on most consumer loans to members of the military and put other financial protections in place.

The change, the NCUA said, withdraws a specific “question and answer” (Q&A) of the revised interpretive rule, issued in 2017, and reverts back to the Q&A from the original interpretive rule, issued in 2016. The change also adds a new Q&A from the original interpretive rule, issued in 2016.

According to NCUA, the DoD issued the original interpretive rule on Aug. 26, 2016, in the form of questions and answers. On Dec. 14, 2017, NCUA noted, the DoD issued a second, amended version of the interpretive rule which, among other things, amended Q&A #2. “In that amendment, the Department provided examples of the types of financed purchases associated with buying motor vehicles and other personal property that eliminate a transaction’s exemption from MLA coverage, and support other transactions as exempt from MLA coverage,” NCUA stated in its letter.

The letter states that, after issuing the second Q&A #2, the DoD became aware of concerns over the ability of creditors to take a security interest in motor vehicles, leading to the recent action.

“This most recent amended version of the interpretive rule withdraws the answer to Q&A #2 from the 2017 interpretive rule and reverts back to the original Q&A #2 issued in 2016,” NCUA advised. In the latest interpretive rule, NCUA stated, DoD notes that “this amended interpretive rule does not change the regulation implementing the MLA, but merely states the Department’s preexisting interpretations of an existing regulation.” The Department also noted this amendment will allow it to conduct additional analysis on the matters covered in that Q&A, NCUA stated.

NCUA Letter to Credit Unions 20-04