[JGo9]

Does the Military Lending Act apply to overdrafts?

When I look at the definition of a “Consumer Credit” (232.3(f)(1)) it mentions “payable by a written agreement in more than four installments.” I don’t believe most institutions have such agreements when it comes to day-to-day overdrafts. We don’t specify in any kind of agreement that consumer must pay their overdrafts back in four or more installments.

However, would an overdraft fee be considered a finance charge?

In talking to some other bankers there appears to be a lack of conscious as to if MLA applies to overdrafts and I would like your take on it.

Thank you!

[rcooper]

Generally an overdraft line of credit would be covered but an overdraft service would not. Exceptions might apply; the definition of “consumer credit” in the final rule (pg. 43579-80) discusses the difference between these two services and what is considered consumer credit under the rule.

If your financial institution doesn’t offer an overdraft line of credit product you will not need to worry about the overdraft fee being a finance charge. If your bank does offer overdraft lines of credit the amount of any overdraft charge that is above what a customer without the overdraft line of credit would pay would be considered a finance charge.

Also, we had a similar question in another forum. Here’s the link to it: https://mycomplianceresource.com/forums/topic/overdraft-lines-of-credit/.

[Author]

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