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Are non-real estate secured (or cash-secured) LOCs covered by the Military Lending Act (MLA) Rule?

My bank is considering offering a new personal line of credit product (LOC) to its customers that will be secured by deposit accounts or stock or investment portfolios. The bank does not anticipate any of the LOCs being unsecured. Are non-real estate secured (or cash-secured) LOCs covered by the Military Lending Act (MLA) Rule?

Yes. Unless another exception applies, secured loans, like unsecured loans, are covered. There is some confusion, however about whether covered borrowers may obtain a loan secured by a financial account. The regulation could be interpreted to prohibit covered borrowers from getting personal loans secured by a bank account or other financial account. (See § 232.8(e) of the MLA regulation which provides that creditors may make loans secured by funds in a financial account if the security interest is taken after the extension of credit. Most security interests are taken at the time of the loan.) However, the Department of Defense’s Interpretive Rule states that banks may make loans secured by a bank account even if the security is obtained at a time other than after the loan is made. (September 2017)

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