By, Gina Ellis
Many banks have procedures in place to obtain a written statement from an applicant to establish military status to determine if certain provisions of the Military Lending Act (MLA) are applicable for consumer disclosure purposes. However, starting on October 3, 2016, banks will have access to a new safe harbor to determine military or dependent status through the Department of Defense (DOD) database or one of the nationwide consumer reporting agencies.
The bank is required to establish an applicant’s military status at the time:
· An applicant initiates an application or 30 days prior
· An applicant applies to establish the account or 30 days prior
· The bank develops or processes a firm offer of credit that includes the status of the consumer, as long as the consumer responds to the offer no later than 60 days after the bank provides the offer
A historic lookback to establish military status is prohibited, so it will be critical to develop procedures and controls upfront for determining military status and providing the proper disclosures associated with extensions of credit to covered members. Covered individuals include members of the armed forces serving on active duty, active guard or reserve duty and their dependents.
Management should begin considering what new procedures will be required to ensure compliance with the safe harbor provisions. Procedures must also be implemented to create and retain a record of the information obtained to verify military status. Various retention methods include keeping a copy of a screenshot from the DOD database or a copy of a credit report. Currently, none of the nationwide consumer reporting agencies’ reports include information regarding military status. Hopefully, they will be able to provide this information by the mandatory compliance date.
It is never too early to think about how your procedures for determining military status will change. You should also consider discussing these new requirements with your loan operating software vendor to determine if they will be prepared to provide the required disclosures. Penalties for noncompliance are severe. Start planning now so these changes will not be forgotten in the TRID whirlwinds.
