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HOT TOPICS
2017
MEMBERSHIP
DIRECTORY
169
before the service member was called to active duty status. The SCRA also allows service members to terminate
pre-service automobile leases if they are called for military service of 180 days or longer. Service members who
sign automobile leases while on active-duty may be able to terminate an automobile lease if they are given orders
for a permanent change of station outside the continental United States or to deploy with a military unit for a
period of 180 days or longer. This law requires a creditor to file an affidavit with the court regarding whether or not
a customer is in military service before obtaining a default judgement against a customer. It also permits a court
to stay (delay) the repossession of a vehicle in certain circumstances. It requires a court to review and approve any
repossession or termination of a lease if the service member entered into the credit sale, loan, or lease and made
a payment before entering military service. The court may delay the repossession or require the creditor to refund
prior payments before repossessing. It can also appoint an attorney to represent the service member, require
the creditor to post a bond with the court, and issue any other orders it deems necessary to protect the service
member. The law also imposes special requirements on a creditor accepting a voluntary surrender of a vehicle. A
large subprime auto finance creditor agreed to pay millions to settle a SCRA claim with the Department of Justice
(DOJ) to settle charges that the creditor failed to obtain court orders before repossessing motor vehicles owned
by protected service members, preventing them from obtaining a court’s review on whether their repossessions
should be delayed or adjusted in light of their military service.
The Military Lending Act
The Military Lending Act (“MLA”), is a federal law that imposes limitations on the cost and terms of certain
extensions of credit to service members and their dependents (“covered borrowers”). The MLA applies to
“consumer credit”extended by a creditor to a “covered borrower.”
For purposes of the MLA, “consumer credit”means “credit offered or extended to a covered borrower primarily for
personal, family, or household purposes, and that is: (i) subject to a finance charge; or (ii) payable by a written
agreement in more than four installments.”There are only four narrow exceptions to this definition of consumer
credit, along with a temporary exemption for credit cards: (i) residential mortgages; (ii) any credit transaction that
is expressly intended to finance the purchase of a motor vehicle when the credit is secured by the vehicle being
purchased; (iii) any credit transaction that is expressly intended to finance the purchase of personal property when
the credit is secured by the property being purchased; and (iv) any credit transaction that is an exempt transaction
for the purposes of Regulation Z. These narrow exceptions are not clearly defined and are subject to interpretation.
Under the MLA, a “covered borrower” is a consumer, who, at the time the consumer becomes obligated on a
consumer credit transaction or establishes an account for consumer credit, is a covered member or a dependent of
a covered member. A “covered member” includes members of the armed forces on active duty or on active Guard
and Reserve Duty, and their dependents. Dependents can include the spouse, in some cases a child, parent or
parent-in-law, or an unmarried person in the legal custody of the military member.
The MLA provides various protections for “covered borrowers.” Those protections fall into two main categories:
(1) a 36% Military Annual Percentage Rate (“MAPR”) cap, and (2) “other MLA terms and conditions,” including
oral and written disclosure requirements and certain specified prohibitions and limitations, such as a prohibition
against using the title of a vehicle as security for the consumer credit obligation. The MAPR is an all-inclusive APR
that eliminates some prior “finance charge” exceptions under Regulation Z. For example, the MAPR calculation
must include (a) fees/premiums charged for voluntary credit insurance, debt cancellation contracts, and debt
suspension agreements, and (b) fees for any ancillary products sold in connection with the consumer credit.