Summary of Consumer Recommendations for Military Lending Act (MLA) Regulations

1. All high cost lending should be covered no matter who offers it, including these current products:

• 350% bank internet payday loans
• 391% bank-funded installment loans
• 57% to 1,100% bank holiday, pay stub and refund anticipation loan
• 120% to 500% bank payday “account advances”
• 877% “overdraft” fees for authorized ATM and debit card withdrawals

2. The regulations could provide a “safety zone” to simplify compliance for legitimate lower cost lending

• Credit cards and other “open-end credit” up to 18% APR plus fees, as long as the creditor gives the Service member a refund upon request if the fees (with some exceptions) plus interest exceed 3% per month
• Open-end credit up to 24% with no fees
• Closed-end credit up to 24% or less, including most fees
  
  => This “safety zone” encompasses most traditional credit union and bank lending.

3. Safety zone credit could be exempt from:

• Penalties for occasionally and inadvertently exceeding the 36% cap
• Need to identify Service member customers
• Dual TILA and MLA disclosures
• Oral disclosures
• Prohibition on waiver of rights other than MLA or SCRA
• Limitations on refinancing, consolidation, rollovers, renewals.
• Prohibition on auto-title lending
• Prohibition against prepayment penalties

4. Safety zone credit should comply with minimal rules that would not burden mainstream lenders:

• Cannot use a post-dated check as security
• Cannot require allotments (direct payment by DOD, not through bank)
• Must comply with Electronic Funds Transfer Act (including for single payment transactions)
• Cannot impose mandatory arbitration clause or waiver of MLA or SCRA rights on Service members

5. Recommendations for Specific MLA Provisions

• Reasonable phase-in period

For first year, and for preexisting accounts, Service members must identify themselves and ask for MLA protections

• After first year, lenders must comply with MLA without requiring Service members to “opt in”

No need to identify military customers for credit under 36% that complies with simple rules.

Current identification and databases are available for identifying Service members and dependents.

• The 36% cap on interest should include all fees and charges (aside from tolerances for some fees for lower cost safety zone lending)
• High cost lenders can make simple disclosures:

Your APR, excluding some fees, is _______%
Your APRI, including all fees, is ________%

Oral disclosures only for high-cost loans arranged orally

• Prohibition on mandatory allotments only prohibits lenders from requiring DOD to pay them directly (without the money even passing through the Service member’s bank account)
• Prohibition on requiring access to members’ financial account as security

Merely closes loopholes in Electronic Funds Transfer Act and extends existing protections to single payment transactions and remotely created checks.

• Refinancing, consolidation only prohibited for high cost loans that increase member’s costs, not beneficial refinancing.
• General arbitration clauses can specify they do not apply to military.