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Is the Military Lending Act (MLA) Credit Card Rule retroactive and cover all of the bank's existing accounts?

My bank’s credit card vendor has informed us that the Military Lending Act (MLA) Credit Card Rule is retroactive and covers all of our existing accounts. Is this true?

No, this is not true. Just like the current MLA rule, coverage for credit cards only applies to credit card accounts that are opened after the October 2017 deadline. The rule is not retroactive: it applies for credit extended in a new credit card account under an open-end consumer credit plan, so compliance is required.

Under the current rules, disclosures must be provided “before or at the time the borrower becomes obligated on the transaction or establishes an account for the consumer credit.” Because a consumer is already obligated, it would not appear that the MLA would apply, even when a credit card is renewed.

It would make no sense to consider a borrower covered before the effective date of the regulation. If that were the case, creditors would have to re-calculate everything retroactively in order to comply with the MAPR restrictions, and would be in violation if any of the prohibited contract clauses were contained in the loan contract.

From the supplementary information to the MLA final rule:

Section 232.12(b) provides a general rule that the definitions, conditions, and requirements of the existing rule apply to transactions involving consumer credit that are consummated or established prior to the compliance date. Relative to the Proposed Rule, the language in § 232.12(b) has been revised to clarify that the ‘‘definitions, conditions, and requirements’’ of the existing rule apply. The Department believes that this provision is equitable, particularly to avoid the potential injustice and operational difficulties that could arise if new requirements under the final rule were to apply to pre-existing transactions or accounts involving consumer credit to covered borrowers. Section 232.12(c) provides exceptions to allow certain provisions of § 232.7(b) and § 232.9(e), as discussed below, to become effective prior to the effective date of the final rule.

The Regulation states: (§232.12(c))

New extensions of consumer credit. Except as provided in paragraphs (d) and (e) of this section with respect to extensions of consumer credit under paragraph (b) of this section (and except as permitted by § 232.13(b)(1)), the requirements of this part that are effective as of October 1, 2015, shall apply only to a consumer credit transaction or account for consumer credit consummated or established on or after October 3, 2016.

(The credit card effective date was extended to allow time for compliance, but this section still applies.) (August 2017)

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