23.3 MLA Borrowers, Identification and Credit Exemptions

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SCRA vs. MLA: Jurisdictional Foundations

A critical distinction on the CRCM examination is differentiating between the SCRA and the MLA:

• Timing of Origination: The SCRA six-percent interest cap applies to qualifying debt incurred before military service. Other SCRA procedural protections have their own scope and are not all limited to pre-service debt. In contrast, the MLA applies exclusively to consumer credit originated while the borrower is currently on active duty or is a covered dependent (in-service debt).
• Rate and Cost Ceiling: The SCRA caps pre-service interest at 6% per annum. The MLA establishes a 36% MAPR maximum for newly originated credit.
• Governing Body: The SCRA is a federal statute enforced judicially and through prudential agencies under 50 U.S.C. § 3901 et seq., whereas the MLA is governed by Department of Defense rules codified in 32 CFR Part 232.

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Covered Borrowers & Safe Harbor Verification Architecture

The MLA protects a strictly defined class of consumers termed "covered borrowers."

Covered Borrower Classifications

Under 32 CFR § 232.3(g), a covered borrower is:

1. Active Duty Servicemember: A member of the Army, Navy, Air Force, Marine Corps, Coast Guard, or Space Force serving on active duty under Title 10, or a member of the National Guard serving under Title 32 active duty orders for more than 30 consecutive days.
2. Covered Dependents: A person whose relationship to an active duty servicemember satisfies statutory dependent criteria:
   • An active duty servicemember's lawful spouse;
   • An unmarried child under 21 years of age;
   • An unmarried child under 23 years of age enrolled in a full-time course of study at an accredited higher education institution who is dependent on the servicemember for over half of their support;
   • An unmarried child of any age who is incapable of self-support due to a mental or physical incapacity existing prior to age 21 (or age 23 if a full-time student); or
   • A dependent parent or parent-in-law residing in the servicemember's household who relies on the servicemember for more than half of their support.

A creditor may use its own method to identify covered borrowers, but Section 232.5 provides a conclusive identification safe harbor through the specified database or consumer-report methods. Preserve the result and use the rule’s timing window; this safe harbor is limited to identification, not all MLA compliance.

Critical Timing and Safe Harbor Rules

• Timing requirement: Make and record the determination when the consumer initiates the transaction or applies to establish the account, or within the preceding thirty days. A status determination used in developing or processing a qualifying firm offer remains available if the consumer responds within sixty days after the offer was provided. A later response requires a new qualifying determination. These windows are not simply thirty days before eventual consummation.
• Prohibition on Self-Certification: Financial institutions cannot rely on consumer self-certification forms or applicant affidavits to secure safe harbor protection. While a bank may ask applicants about military status for preliminary operational routing, only the specified DMDC or qualifying consumer-report methods provide the regulatory covered-borrower identification safe harbor. This safe harbor does not immunize unrelated MLA violations.
• One-time determination: A timely recorded qualifying determination is conclusive for that transaction or account. A consumer who was not covered does not convert an existing account into an MLA account merely by later entering service. Section 232.2 states that the part does not apply to a transaction or account relating to a consumer who no longer is a covered borrower; distinguish that rule from obligations already imposed and from separate SCRA rights.
• Recordkeeping: Timely create and thereafter maintain the identification record to rely on the safe harbor. Section 232.5 does not prescribe a universal twenty-five-month destruction date. Set retention to preserve the account’s safe-harbor evidence and satisfy other applicable rules and litigation holds.

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Scope of Covered Credit & Statutory Exclusions

The MLA defines consumer credit broadly by referencing Regulation Z (12 CFR § 1026.2(a)(12)), covering credit offered or extended to a covered borrower primarily for personal, family, or household purposes that is subject to a finance charge or payable by written agreement in more than four installments.

Inclusions: Covered Consumer Credit

Credit products subject to the MLA include:

• Credit card accounts under an open-end consumer credit plan;
• Unsecured closed-end personal loans and installment notes;
• Deposit account overdraft lines of credit (excluding standard discretionary overdraft payment services);
• Tax refund anticipation loans (RALs);
• Vehicle title loans and pawn transactions.

The Three Explicit Statutory Exclusions

Under 10 U.S.C. § 987(i)(6) and 32 CFR § 232.3(f)(2), Congress expressly excluded three specific credit categories from the definition of consumer credit:

1. Residential Mortgage Transactions: Any credit transaction secured by an interest in a consumer's dwelling (such as purchase-money mortgages, refinances, home equity loans, and home equity lines of credit).
2. Motor Vehicle Purchase-Money Loans: Any credit transaction to finance the initial purchase of a motor vehicle when the credit is fully secured by the motor vehicle being purchased.
3. Personal Property Purchase-Money Loans: Any credit transaction to finance the initial purchase of personal property (such as furniture, home appliances, or consumer electronics) when the credit is fully secured by the property being purchased.

Purchase-money scope: Read the transaction and the current interpretation. In February 2020, DoD withdrew the 2017 interpretation specifically discussing motor-vehicle financing with additional products. The restored personal-property interpretation distinguishes financing the acquisition of the property from a hybrid purchase and unrelated cash advance. Do not present the withdrawn motor-vehicle GAP or negative-equity interpretation as current law, or assume every secured vehicle advance qualifies for the purchase exemption.

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