Back 2 Basics: MLA Compliance
By now most credit union compliance professionals are probably already aware that NCUA’s 2025 Supervisory Priorities (LCU 25-CU-01) was released. In case you missed the release, my colleague and teammate covered it on Tuesday on America’s Credit Unions’ compliance blog, here.
From a consumer financial protection perspective, NCUA highlighted overdraft programs, fair lending, HMDA/Reg C, the Military Lending Act, and EFTA/Reg C. Are you surprised by any of those? I’m not – except for the Military Lending Act (MLA) . The MLA was last on the “priorities list” in 2020 where it had been an exam priority since 2017 or 2016 as a result of changes to it and its implementing regulation found at 12 CFR 232.
By the way, in case you’re not aware the Consumer Financial Protection Bureau’s (CFPB) Office of Servicemember Affairs (OSA) issues an annual report highlighting areas of concern based on complaints submitted by servicemembers, veterans and military families in the previous calendar. In the latest report, issued in September 2024, the complaints received from active duty servicemembers in 2023 included complaints about credit cards, among other things such as mortgages and checking and savings accounts.
Anyway, back to NCUA’s priorities list for 2025, and in particular the MLA. NCUA indicated that “examiners will review compliance with the Military Lending Act requirements, including policies and procedures, compliance management systems, and checking and monitoring for military status.”
So, let’s review the basics on complying with the MLA:
What type of lending does the MLA cover? While all types of consumer credit are covered by the MLA such as credit cards, payday alternative loans, and overdraft lines of credit – any credit that is secured by property that was purchased with the credit is NOT covered by the MLA, so excluded from the MLA would be credit like mortgage loans and auto loans.
Who is a covered borrower? In order to be covered by the MLA, the consumer applying for credit must be a “covered borrower.” A covered borrower is an active-duty service member, including active guard and reserve duty; their spouses, children, and certain other dependents of active duty (including guard and reserve) service members. What is important to remember about the MLA is that the consumer borrower must be “covered” at the time the extension of credit is given -- and coverage under the MLA stops once the borrower is not considered “covered” or in other words, ceases to be on active status.
Will the applicant identify themselves as a covered borrower? How will we know? The responsibility is on the institution to determine whether the borrower is a covered borrower under the MLA – which sounds really onerous, except that the regulation offers two safe harbors (if used) to shield the credit union from liability. Generally, to take advantage of the safe harbors the credit union will need to verify the active-duty status by using the Defense Manpower Data Center, a Department of Defense database or by verifying active-duty status by obtaining information from a consumer report from a nationwide consumer reporting agency. Keep in mind that in order to establish the safe harbor, there must be adequate record-keeping/sufficient paper-trails.
What is the MAPR? The acronym stands for “military annual percentage rate.” Extensions of credit to covered borrowers cannot exceed the (MAPR) of 36 percent (for open end credit, the MAPR cannot exceed 36% in any billing cycle). Included in the calculation for MAPR are certain other fees such as application fees and participation fees. In contrast these certain other fees are not included when calculating the annual percentage rate (APR) under Regulation Z. The credit union will need to accurately determine which fees charged by the credit union are required to be included in the calculation of the MAPR. Don’t forget that bona fide and reasonable fees for credit cards can be excluded from the MAPR calculation.
Are there additional disclosure requirements under the MLA? Yes, there are mandatory written and oral disclosure requirements. These disclosure requirements must be provided to the covered borrower either before or when the covered borrower becomes obligated to the covered transaction. The written disclosures must include the following:
- A statement of the MAPR
- Regulation Z disclosures
- A payment schedule (closed end credit) or account opening disclosure (open end credit) or a clear description of the payment obligation.
For the oral disclosures, the information in the statement of the MAPR and description of the payment obligation must both be provided orally in person or via a toll-free number (so that the covered borrower can call to hear the disclosures). If provided via a toll-free number, that phone number must also be provided on the credit application or on the written disclosure that was provided to the covered borrower.
For more information on NCUA’s supervisory expectations in regard to the MLA, see NCUA’s exam checklist and related resources here.
Related to military lending, America’s Credit Unions has been actively lobbying for the reintroduction of the Veterans Member Business Loan Act. This legislation was introduced in the 118th Congress in the House by Representatives Vincente Gonzalez (D-TX) and Brian Fitzpatrick (R-PA) and in the Senate by Senators Dan Sullivan (R-AK) and Mazie Hirono (D-HI). The sponsors are working with America’s Credit Unions to reintroduce this measure in the 119th Congress. This credit union specific legislation would provide veterans with more business loan options and greater access to credit and opportunity by exempting loans made to veteran-owned businesses from the credit union MBL cap which is currently set at 12.25%. Resources pertaining to America’s Credit Unions’ legislative and regulatory advocacy developments can be accessed here.