The Military Lending Act (MLA) will apply to credit card accounts starting Tuesday, October 3. The final rule took effect last October but provided a one-year exemption for “credit extended in a credit card account under an open-end (not home-secured) consumer credit plan.” Although the final rule permits the Secretary of Defense to extend the exemption for up to one year (October 3, 2018), the DoD declined to do so and is allowing the exemption to expire next week.
The MLA final rule imposes a host of requirements in connection with extensions of “consumer credit” to active-duty servicemembers and their dependents (“covered borrowers”), including a 36-percent cap on the Military Annual Percentage Rate (MAPR), substantive oral and written disclosures, and prohibitions against subjecting covered borrowers to certain contractual terms. In particular, creditors are prohibited by the final rule from including pre-dispute arbitration provisions in consumer credit contracts extended to covered borrowers, a fact that has been overlooked (or ignored) by some proponents of the CFPB’s arbitration rule. As such, even if Congress were to repeal the CFPB arbitration rule using the Congressional Review Act, servicemembers and their dependents who are protected by the MLA would still have the right to take their cases to court.
Credit card issuers should take steps to ensure that they (and their servicers) are prepared to comply with the MLA final rule with respect to credit card accounts opened on or after Tuesday, October 3.