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Additional Guidance Issued on the Military Lending Rule

December 20, 2017
Joseph D. Simon
Garden City

The U.S. Department of Defense (“DOD”) has issued additional compliance guidance for lenders with respect to the Military Lending Act (“MLA”), the law that imposes certain limitations and requirements on consumer loans to active-duty service members and their dependents. The additional guidance addresses certain questions the DOD has received regarding the MLA.


The MLA is implemented by a regulation issued by the DOD. That regulation was amended in 2016 primarily to extend the protections of the MLA to a broader range of closed-end and open-end credit products, to help creditors identify covered persons, and to modify the disclosures to be provided to covered borrowers.

The covered products include those aligned with the definition of “consumer credit” under the Truth in Lending Act and its implementing Regulation Z. As a result, the amended MLA applies to all forms of vehicle title loans, installment loans, unsecured open-end lines of credit, payday loans, refund anticipation loans, credit cards, deposit advance loans and overdraft lines of credit (but excludes demand deposit account overdraft protection services). The MLA still exempts residential mortgages and purchase-money vehicle-secured loans. 

A covered borrower is a member of the armed forces who is serving (1) active duty as a member of the U.S. military, Coast Guard, or National Guard, under a call or order that does not specify a period of thirty days or fewer, or (2) Active Guard and Reserve duty.  A covered creditor must verify whether the consumer is a “covered borrower” at the time the consumer becomes obligated on a consumer credit transaction or establishes an account for consumer credit. Creditors are granted a safe harbor in identifying a covered borrower if they use either the MLA database (maintained by the Defense Manpower Data Center under the DOD) or consumer reports from a nationwide consumer credit reporting agency.

The MLA requires a covered creditor to provide: (1) a statement of the Military Annual Percentage Rate (“MAPR”) applicable to the extension of consumer credit, (2) any disclosures required by Regulation Z, and (3) a clear description of the payment obligation of the covered borrower.

Under the MLA, covered credit transactions are capped at a 36% MAPR. The MAPR is generally calculated the same way as the Annual Percentage Rate (“APR”) is calculated under Regulation Z, but it also includes certain fees and charges including credit default insurance, debt suspension plans, credit insurance premiums, debt cancellation fees, and certain application and annual fees. 

MLA Interpretive Rule

On August 26, 2016, the DOD issued an interpretive rule (the “Interpretive Rule”) in the form of questions and answers (“Q&As”) providing guidance on the DOD’s regulation implementing the MLA. Some of the major clarifications made in the Q&As include the following:

Amendment to the MLA Interpretive Rule

The DOD has now issued an amendment to the Interpretive Rule which took effect on December 14, 2017. The amendment provides additional guidance as follows:

 For purchase of a motor vehicle or personal property under circumstances where the creditor simultaneously extends credit in an amount greater than the purchase price of the motor vehicle or personal property, the exemption from the MLA is available if the purpose of the credit beyond the purchase price of the motor vehicle or personal property is to finance costs related to the object securing the credit (e.g., an extended warranty or optional leather seats in that vehicle).

Further Information

The MLA Interpretive Rule can be found here, and its recent amendment is available here. If you have any questions regarding the MLA Interpretive Rule, its Amendment or the MLA in general, please feel free to contact Joseph D. Simon at (516) 357-3710 or via email at, Kevin Patterson at (516) 296-9196 or via email at, or Mandy Xu at (516) 357-380 or via email at