Carleton Compliance Alert
Department of Defense MLA Interpretive Letter
The following information is presented by the Carleton Compliance Department. In order to keep our customers abreast of what is happening in the consumer credit and credit insurance industries, the following law changes have been compiled for your review. Please check to see if any of the listed changes will impact your operations.
*The content of this alert is intended to convey general information only and not to provide legal advice or opinions.
The Department of Defense issued an interpretive rule (Click Here) regarding the 2015 Military Lending Act (MLA) amendment effective December 14, 2017.
In the 2015 amendments to the MLA, the DOD introduced the phrase “expressly intended to finance the purchase of motor vehicle/personal property” in its determination that such a transaction does not meet the definition of “consumer credit” and, thus, is not subject to the requirements of the Act. That raised the specter that financing amounts above the purchase price could void the exception from MLA requirements.
Subsequent guidance by the DOD presented in an interpretive ruling in August of 2016 merely muddied the waters further and failed to provide clarity on the issue. Nearly every industry trade group, and scores of creditors, requested further clarification from the DOD.
The December 14th ruling addresses that issue of qualifying for the exceptions in the same question and answer format as the previous guidance. The DOD answer to question number 2 states that:
- “Generally, financing costs related to the object securing the credit will not disqualify the transaction from the exceptions, but financing credit-related costs will disqualify the transactions from the exceptions”
Specific examples cited by the DOD were:
- The inclusion of financing for optional leather seats and an extended warranty for service would not disqualify the transaction from the exception.
- The inclusion of financed Guaranteed Asset Protection (GAP) or credit insurance would disqualify the transaction from the exception.
In its explanation, the DOD also makes the statement:
- “A credit transaction that finances the object itself, as well as any costs expressly related to that object, is covered by the exceptions in Sec. 232.3(f)(2)(ii) and (iii).”
It would appear from that statement that financing taxes, registration, title fee etc. would meet the definition of “expressly related to that object”. However, since these items are not specifically addressed, it remains a bit of an unclear situation and may pose a level of risk.
Other items such as administrative costs and document fees are even more precarious. Document fees directly related to the vehicle may pass the test but any document related to the “credit” may be suspect.
The interpretive rule does state that negative equity alone does not disqualify the transaction from the exceptions. Thus, ending speculation that negative equity, since it in effect increases the amount financed, could be problematic.
The inclusion of financed “credit related products and services” will certainly expand the scope of transactions subject to the MLA requirements.
Since the inception of the Warner Defense Act in 2007, the CarletonCalcs Modules have supported the capability to properly compute an MAPR value. However, due to the broad exclusion of motor vehicle financing from the MLA requirements previously, that feature has been a nominal point of emphasis for users in the auto lending industry. The more recent industry compliance interpretations have resurrected this topic. Carleton’s support team can assist in identifying the proper variables and data needed to compute an MAPR value.
A parallel update to CarletonCalcs enables Carleton’s partner’s lenders to individually define which fees will be treated as Military Interest for each individual loan product.
Carleton Research, Compliance, and Customer Support
Posted on Jan 03, 2018