Last July, the Department of Defense published a final rule to amend and dramatically expand the scope of the Military Lending Act (MLA). First enacted in 2007, the MLA was designed to provide specific protections for active duty service members and their dependents in consumer credit transactions. The MLA initially applied to three specific “consumer credit” products: payday loans, vehicle title loans, and tax refund anticipation loans.
The Final Rule significantly expands the list of credit products covered by the MLA to include credit cards, installment loans, student loans, deposit advance, refund anticipation, vehicle title, and payday loans. The rule also makes certain changes to substantive requirements, including a significant change to the Safe Harbor protection.
Compliance with the Final Rule will be important because the MLA contains serious penalties and remedies. Any loan made in violation of the MLA is void at its inception. As a result, the lender would not be able to recover either the principal or interest relating to the transaction. Additionally, private plaintiffs may recover actual damages of not less than $500 per violation, plus punitive damages, attorneys’ fees, and other relief.
Needless to say, financial services firms should make it a priority to develop rigorous MLA policies and procedures to ensure compliance with the complex new rules. Compliance is required by October 3, 2016 for most products, and after October 3, 2017 for credit cards.