Want to give an auto dealer or lender an instantaneous headache?
All you have to do is say four words:
Military Lending Act compliance.
As we’ve written before, the MLA presents significant trouble to anyone trying to sell or lease a vehicle to a member of the US armed forces, or to a servicemember’s relative or spouse. In such transactions, the law prohibits creditors from imposing a “military annual percentage rate” greater than 36%. An MAPR is extremely broad; unlike a traditional APR, it “includes all cost elements associated with the extension of credit, including fees, service charges, renewal charges, credit insurance premiums, any ancillary products sold, and any other charge or premium with respect to any extension of credit to a servicemember of the servicemember’s dependent.”
For years, members of the auto industry thought they had a handle on all this. Then, in 2017, the Department of Defense issued a new interpretation “clarifying” the rule and dramatically increasing the kinds of transactions covered under the MLA.
This was bad news for lenders and dealers. Attorneys contend that the new interpretation effectively “destroys the practicality and economics of financing the purchase of a vehicle with a credit-related product.”
Apparently, lawmakers can’t get enough of giving the auto industry headaches. Instead of backtracking or clarifying the DoD’s “clarification,” members of Congress are considering a proposal that would increase federal supervision of MLA compliance.
And here’s where that headache turns into a migraine. The proposal comes from the one—the only—Consumer Financial Protection Bureau.
That’s the new CFPB—not Mick Mulvaney’s ill-fated “BCFP”—under new director Kathy Kraninger. And just as our experts predicted, this revitalized Bureau appears to be reclaiming its mantle as an aggressive regulatory authority.
“In what has been a rare occurrence in recent months, given a successful effort by the White House and Republicans to scale back its reach, the Consumer Financial Protection Bureau is seeking to legislatively expand its purview and better police financial products targeted to military personnel.
Director Kathleen Kraninger has asked Congress to grant the Bureau ‘clear authority to supervise for compliance’ with the Military Lending Act.
‘The Bureau is committed to the financial well-being of America’s service members. This commitment includes ensuring that lenders subject to our jurisdiction comply with the Military Lending Act so our service members and their families are provided with the protections of that law,’ she said in a statement last week. ‘That’s why I have asked Congress to explicitly grant the Bureau authority to conduct examinations specifically intended to review compliance with the MLA. The requested authority would complement the work the Bureau currently does to enforce the MLA.’”
Lenders and dealers, you have our sympathies. You also have access to our resources and compliance platform. Learn all about the MLA here. When you’re ready, ask us how you can keep your dealership on the right side of the law—wherever the regulatory pendulum swings next.