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Consumer Credit Regulation: 2.2.5.2 Consumers Protected by the MLA

The MLA covers consumer credit that is extended to an individual who, at the time he or she becomes obligated, is an active-duty member of the military or the dependent of an active-duty member.60 Being on active duty is defined as being on active duty on a call or order that does not specify a period of thirty days or less.61 Active duty includes Active Guard and Reserve duty.62

Consumer Credit Regulation: 2.2.5.3 Creditor Identification of Those Covered by the MLA

A creditor with thousands or even millions of accounts must identify which customers are covered by the Act, because the MLA provides protections that other consumers do not enjoy. The DoD regulations allow creditors to use any method to assess whether a consumer is a covered borrower,69 but the creditor is liable if it fails to identify a covered person and fails to offer that person MLA protections.

Consumer Credit Regulation: 2.2.5.4 Covered Creditors

With three exceptions described below, the MLA applies to “creditors,” defined as persons engaged in the business of extending consumer credit or assignees of such persons.79 Thus, unlike the Truth in Lending Act, MLA provisions always apply to assignees.

Consumer Credit Regulation: 2.2.5.5 Covered Consumer Credit

DoD regulations in effect prior to October 2016, limited covered consumer credit just to three forms of consumer credit—payday, auto title, and refund anticipation loans. The old DoD regulations defined each of those forms of credit and some creditors sought to evade the MLA by offering credit that fell just outside those definitions.

Consumer Credit Regulation: 2.2.5.7.1 Restrictions on a second loan to the same borrower

A payday lender cannot repay, roll over, renew, refinance, or consolidate credit it has extended to a consumer with the proceeds of other credit it extends to that consumer. This provision does not apply to creditors other than payday lenders, does not apply to payday loans that were initially extended before the servicemember went on active duty, and does not apply to payday lenders who are banks, savings associations, or credit unions.126

Consumer Credit Regulation: 2.2.5.7.3 No arbitration requirements and no unreasonable notice requirements

Creditors cannot extend consumer credit where the creditor requires the consumer to submit to arbitration or imposes other onerous legal notice provisions in the case of a dispute.128 DoD interpretations provide that credit agreements can include an arbitration agreement as long as the agreement contains a savings clause that excludes the agreement’s application to servicemembers or their dependents.129 Thus, the MLA is violated when credit agreements extended to servicemembers or their dependen

Consumer Credit Regulation: 2.2.5.7.5 Limits on taking a vehicle title as security

The MLA prohibits a creditor from taking as security a motor vehicle’s title.143 Only for the purposes of this provision, “creditor” excludes “a person that is chartered or licensed under Federal or State law as a bank, savings association, or credit union.”144 The limit on taking as security a motor vehicle’s title is in addition to the general imposition of a 36% cap on any form of consumer credit.145

Consumer Credit Regulation: 2.2.5.7.6 Limits on allotments

A creditor cannot require as a condition for the extension of consumer credit that the consumer establish an allotment to repay the obligation.151 A military allotment is money that is automatically distributed from the military member’s pay. An exception is made for creditors who are military welfare societies or service relief societies.152

Consumer Credit Regulation: 2.2.5.8 Application of State Credit Laws to Military Personnel Stationed in the State

States cannot authorize creditors to charge active -duty military or their dependents interest rates higher than the legal limits for residents of that state. States also cannot permit the violation or waiver of any state credit statute that benefits state residents because of the consumer’s nonresident or military status, regardless of where the consumer’s permanent home of record is located.154

Consumer Credit Regulation: 2.2.5.10.2 Defenses

A person is not liable for the remedies specified in the specific MLA regulation at 32 C.F.R. § 232.9(e) if the person shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.171 Both criteria must be met—the violation must not be intentional and must have resulted from a bona fide error.

Consumer Credit Regulation: 2.2.5.12 State and Federal Enforcement

The MLA provides that: “The provisions of this part, other than § 232.9(a) [misdemeanor penalties] shall be enforced by the agencies specified in section 108 of the Truth in Lending Act (15 U.S.C. 1607) in the manner set forth in that section or under any other applicable authorities available to such agencies by law.”181 Section 108 of TILA (15 U.S.C. § 1607) lists a number of federal agencies, including the CFPB182 and a number of banking agencies.

Consumer Credit Regulation: 2.2.6 Equal Credit Opportunity Act

The Equal Credit Opportunity Act (ECOA)187 applies to every aspect of a credit transaction, including the application, evaluation of the application, the decision to grant or deny credit, and various activities that follow the granting of credit. It sets out a general rule that creditors cannot discriminate against any applicant in any aspect of a credit transaction on the basis of:

Consumer Credit Regulation: 2.2.7.1 Key Features of the Act

In 2010, Congress dramatically restructured the credit marketplace by enacting the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).191 The Dodd-Frank Act represents the culmination of a series of hearings that documented the dangers, instability, and need for regulation in the credit marketplace.192 Among the major features of the Dodd-Frank Act are:

Consumer Credit Regulation: 2.2.7.1a Constitutionality of the CFPB’s Funding

On October 21, 2022, a three-judge panel of the Fifth Circuit ruled that the Consumer Financial Protection Bureau’s (CFPB) funding mechanism is unconstitutional because it violates the Appropriations Clause.200 In addition, the Fifth Circuit held that the CFPB’s Payday Lending Rule is invalid because it was promulgated using the unconstitutional funding mechanism.