2018 GNYADA Membership Directory

member. The law also imposes special requirements on a creditor accepting a voluntary surrender of a vehicle. A large subprime auto finance creditor agreed to pay millions to settle a SCRA claim with the Department of Justice (DOJ) to settle charges that the creditor failed to obtain court orders before repossessing motor vehicles owned by protected service members, preventing them from obtaining a court’s review on whether their repossessions should be delayed or adjusted in light of their military service. The Military Lending Act The Military Lending Act (MLA) is a federal law that imposes limitations on the cost and terms of certain extensions of credit to service members and their dependents (“covered borrowers”). The MLA applies to “consumer credit” extended by a creditor to a “covered borrower.” For purposes of the MLA, “consumer credit”means “credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and that is: (i) subject to a finance charge; or (ii) payable by a written agreement in more than four installments.”There are only four narrow exceptions to this definition of consumer credit, along with a temporary exemption for credit cards: (i) residential mortgages; (ii) any credit transaction that is expressly intended to finance the purchase of a motor vehicle when the credit is secured by the vehicle being purchased; (iii) any credit transaction that is expressly intended to finance the purchase of personal property when the credit is secured by the property being purchased; and (iv) any credit transaction that is an exempt transaction for the purposes of Regulation Z. These narrow exceptions are not clearly defined and are subject to interpretation. Under the MLA, a “covered borrower” is a consumer, who, at the time the consumer becomes obligated on a consumer credit transaction or establishes an account for consumer credit, is a covered member or a dependent of a covered member. A “covered member” includes members of the armed forces on active duty or on active Guard and Reserve Duty, and their dependents. Dependents can include the spouse, in some cases a child, parent or parent-in-law, or an unmarried person in the legal custody of the military member. The MLA provides various protections for “covered borrowers.” Those protections fall into two main categories: (1) a 36% Military Annual Percentage Rate (MAPR) cap, and (2) “other MLA terms and conditions,” including oral and written disclosure requirements and certain specified prohibitions and limitations, such as a prohibition against using the title of a vehicle as security for the consumer credit obligation. The MAPR is an all-inclusive APR that eliminates some prior “finance charge” exceptions under Regulation Z. For example, the MAPR calculation must include (a) fees/premiums charged for voluntary credit insurance, debt cancellation contracts, and debt suspension agreements, and (b) fees for any ancillary products sold in connection with the consumer credit. In order to ensure that the terms of any consumer credit transactions entered into with covered borrowers meet the requirements of the MLA, the creditor must determine the covered borrower status of every applicant for consumer credit. Though the creditor is not required to use a specific method to determine covered borrower status, the MLA Regulations do allow a safe harbor for covered borrower status determinations. In order to obtain the safe harbor, creditors must either (1) directly or indirectly (perhaps through a service provider) verify the consumer’s covered borrower status through the MLA database, or (2) verify the consumer’s covered borrower status by using a consumer report obtained from a nationwide consumer reporting agency that has a statement, code, or indicator (if any) concerning the consumer’s covered borrower status. Doing so, and keeping a record of the findings, provides a safe harbor from liability under the MLA’s terms in such status determinations.

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