The American Bankers Association, Consumer Bankers Association, Independent Community Bankers of America, National Association of Federal Credit Unions, and Association of Military Banks of America have submitted a 59-page letter commenting on the Department of Defense’s proposed revisions to its Military Loan Act regulations.

The proposal, which was issued in September to implement MLA amendments made by the 2013 Defense Authorization Bill, would significantly expand MLA coverage to include all payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards.  In its current form, the MLA rule covers only three types of consumer credit: closed-end payday loans with a term of 91 days or fewer in which the amount financed does not exceed $2,000; closed-end vehicle title loans with a term of 181 days or fewer, and closed-end tax refund anticipation loans.  The 2013 MLA amendments also included a new civil liability provision that allows private actions for MLA violations to be filed in federal court.

The trade groups key comments include the following:

  • While data may support a tailored modification of MLA coverage, there is no data or evidence to support the proposed broad expansion of covered “consumer credit” from its current definition to capture nearly all non-mortgage, non-purchase money consumer credit (i.e. “mainstream depository institution products, including credit cards and affordable small-dollar loans”).  Accordingly, the trade groups recommend that the DoD should expand coverage as needed to address efforts at evasion but in a targeted fashion.  Specifically the trade groups recommend that the DoD broaden coverage by eliminating the current parameters in the existing definition of covered consumer credit related to loan terms and amount and the restriction to closed-end credit.
  • The DoD should exempt depository institutions “in light of its true targeted interest in products specialized in by non-depository institutions and in view of the recent legislative and regulatory enhancement of consumer protection oversight and regulation of depository institutions.”
  •  The proposed “military annual percentage rate” cap inflates and distorts the cost of credit and is particularly problematic for open-end credit, especially credit cards.
  • The prohibition against pre-dispute arbitration agreements “means that servicemembers and their spouses and dependents may lose that option as a means to resolve any dispute.  This fair and typically quicker alternative to litigation is particularly convenient to servicemembers who are deployed away from their civilian home or abroad, where they lack access to courts.”
  • The proposal would require lenders to access the DoD’s Servicemembers Civil Relief Act database for virtually all consumer credit loans rather than only when active military personnel self-identify as they currently must do.  The greatly increased volume of inquiries to the database, which today is frequently unavailable, will cause consumer credit to come to a halt when access to the database is unavailable.