Comment Call - CUToday



August 30, 2016Ms. Diana BanksDeputy Assistant Secretary of DefenseU.S. Department of Defense1400 Defense PentagonWashington, DC 20301Re:Continuing Concerns with Military Lending Act RegulationDear Ms. Banks:On behalf of America’s credit unions, I am writing to the U.S. Department of Defense (DoD) to express our grave concerns regarding the fast-approaching effective date of the DoD’s recently amended Military Lending Act (MLA) regulation, which establishes limitations on terms of consumer credit extended to servicemembers and their dependents. The Credit Union National Association (CUNA) represents America’s credit unions and their more than 100 million members.Beginning with the DoD’s advanced noticed of proposed rulemaking in 2013, CUNA has been very vocal about concerns with the regulation, particularly regarding the increased costs and unintended consequences that are likely to result from an overly broad rule. We remain troubled that the regulation may ultimately, and unintentionally, have a negative impact on the delivery of high quality, reasonably priced financial products and services to our troops and their families. Credit union products and services are beneficial alternatives to those offered by predatory lenders, particularly those that exploit military personnel.Delay of Effective DateCUNA has worked extensively with DoD and Consumer Financial Protection Bureau (CFPB) staff over the past six months to make them aware of specific questions and issues credit unions need answers to and clarification on in order to comply with the regulation. This spring, at the DoD’s request, CUNA provided an extensive list detailing these concerns and recommended clarifications. As stated in a May letter to Mr. Marcus Beauregard, CUNA urged the DoD to provide clarification in the form of compliance guidance no later than June. While we appreciate the DoD’s guidance that was recently published on August 26, in light of the fact that we are roughly one month from the October 3 effective date, we are concerned the guidance may be too little, too late.Based on our review of the guidance, it appears to provide some helpful information regarding certain provisions of the regulation. However, there are a number of areas and issues on which credit unions need clarification that were not addressed in the guidance, such as the definition of the term “ancillary product,” which is critical to accurately determining the Military APR. In fact, we note that the DoD’s guidance addresses fully only two, and arguably partially only an additional two of the nine total issues that CUNA submitted to the DoD, previously mentioned.While some credit union core processors have indicated they expect to be ready by October 3, given remaining ambiguities in the rule, we question whether it’s possible for any financial services processors to be fully prepared. Such ambiguities aside, it is likely that some lenders will be unable to comply with the regulation by the effective date. This compliance struggle will harm not only the lenders themselves but, more importantly, it has the potential of harming servicemembers that may be unable to obtain credit due to lenders’ compliance challenges.Therefore, we urge the DoD to delay the MLA rule’s effective date for a minimum of six months to ensure credit unions and other lenders are fully capable of compliance. While we question the need for last year’s amendments to the MLA rule to expand the scope of covered products, we appreciate that there are minimum mandates within the MLA itself that the DoD must satisfy. However, we believe it is wholly within the DoD’s statutory authority under the MLA to delay the effective date, particularly when doing so would ultimately result in greater protection of servicemembers, which is the primary objective of the MLA. Delaying the effective date will allow credit unions and credit union processors to ensure everything is in place to continue lending to their over 100 million members, including servicemembers and their families.Alternatively, if the DoD chooses to not delay the effective date, we urge it to adopt a safe harbor for lenders that are working to comply with the rule but are unable to do so by October 3. The safe harbor should permit such lenders to continue operating—entirely or partially—under the regulation’s requirements prior to the July 2015 amendments. Since the DoD does not examine financial institutions, it is critical that the DoD pledge to work with the federal financial regulators to ensure the safe harbor will be observed by lenders’ prudential regulators. Absent a delayed effective date, we ask the DoD to establish a safe harbor of at least six months from the October 3 effective date.Clarification Regarding Raw Land Loans under the RegulationIf it would be useful, CUNA can provide a comprehensive list of issues not addressed in the guidance for which credit unions continue to need clarification. However, there is a specific issue we would like to raise now that the DoD can quickly clarify, as it may have been an inadvertent oversight.In general, the MLA rule exempts Mortgage loans secured by a dwelling and Purchase Money loans where the loans are secured by the vehicles or personal property being purchased. Raw land loans do not fit within either of these two categories, so it would appear they are covered by the MLA rule. However, since raw land loans are not the type of loans often obtained by servicemembers, it seems highly unlikely the DoD actually intended for them to be covered by the rule. Therefore, we ask the DoD to clarify and confirm that raw land loans are in fact not covered by the MLA rule.ConclusionOn behalf of America’s credit unions and their more than 100 million members, we thank you for considering our request to delay the October 3 effective date. If you have any questions about our comments, please do not hesitate to contact me at (202) 508-6732.Sincerely,Jared IhrigChief Compliance OfficerCc:Honorable Richard Cordray, Director, Consumer Financial Protection BureauHonorable Rick Metsger, Chairman, National Credit Union Administration ................
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