On February 28, 2020, the Department of Defense (DOD) published and made effective amendments to its interpretive rule related to the Military Lending Act (MLA). The MLA, which has undergone numerous revisions over the past several years, provides protection to servicemembers and their dependents by limiting the military annual percentage rate (MAPR) that a creditor may charge to a maximum of 36 percent and requiring disclosures among other consumer protections. Revisions to the MLA regulations and DOD issued guidance over recent years include:
- In 2015 the DOD amended its regulation implementing the Military Lending Act which provide greater protections across a broader range of credit products.
- In 2016, the DOD issued an MLA Interpretive Rule in the form of Q&As.
- In 2017 the DOD amended the Interpretive Rule with a revised Q&A #2 which discussed when credit is extended for the purpose of purchasing a motor vehicle or personal property and the creditor simultaneously extends credit in an amount greater than the purchase price of the motor vehicle or personal property.
- On February 28, 2020 the Interpretive Rule was once again revised to remove updated Q&A #2 (as revised in 2017) and revert back to the original Q&A #2 (issued on August 26, 2016). The DOD has also added a new Q&A #21 to address questions about the use of Individual Taxpayer Identification Numbers to identify covered borrowers in the DOD’s database.
The revised Q&A #2 and new Q&A #21 are listed below.
Question 2. Does credit that a creditor extends for the purpose of purchasing personal property, which secures the credit, fall within the exception to ‘‘consumer credit’’ under 32 CFR 232.3(f)(2)(iii) where the creditor simultaneously extends credit in an amount greater than the purchase price?
Answer: No. Section 232.3(f)(1) defines ‘‘consumer credit’’ as credit extended to a covered borrower primarily for personal, family, or household purposes that is subject to a finance charge or payable by written agreement in more than four installments. Section 232.3(f)(2) provides a list of exceptions to subparagraph (f)(1), including an exception for any credit transaction that is expressly intended to finance the purchase of personal property when the credit is secured by the property being purchased. A hybrid purchase money and cash advance loan is not expressly intended to finance the purchase of personal property, because the loan provides additional financing that is unrelated to the purchase. To qualify for the purchase money exception from the definition of consumer credit, a loan must finance only the acquisition of personal property. Any credit transaction that provides purchase money secured financing of personal property along with additional ‘‘cashout’’ financing is not eligible for the exception under § 232.3(f)(2)(iii) and must comply with the provisions set forth in the MLA regulation.
Question 21. Does a creditor qualify for the safe harbor set forth in 32 CFR 232.5(b)(2)(i)(A) if the creditor uses an Individual Taxpayer Identification Number (ITIN) to search the Department’s database to conclusively determine whether credit is offered or extended to a covered borrower, and thus may be subject to 10 U.S.C. 987 and the requirements of 32 CFR 232.5(b)?
Answer: Yes. The Department recognizes that while all members of the Armed Forces will have a Social Security Number (SSN), a limited population of dependents, who meet the definition of a covered borrower in 32 CFR 232.3(g), may not qualify for a SSN due to their citizenship status. An ITIN is a tax processing number issued by the Federal government in lieu of a SSN. ITINs are only available for certain nonresident and resident aliens, their spouses, and dependents who cannot obtain a SSN and can be used in searches of the Department’s database.7 Since all covered borrowers will have a SSN or ITIN, the Defense Manpower Data Center (DMDC) MLA database contains ITINs for covered borrowers who are not eligible to obtain an SSN. Therefore, for purposes of 32 CFR 232.5(b)(2)(i)(A), an ITIN is a ‘‘Social Security number.’’
Check Compliance Resource’s training page this spring for training on the MLA.