Military Lending Act (MLA) DoD Interpretive Rule – Lookback

Compliance > Lending > Service Members > Military Lending Act
Q:  Does the historic lookback provision of 32 CFR 232.5(b)(2)(B) prevent creditors from adopting a risk management plan that includes periodically screening credit portfolios to discover changes to covered borrower status?
A:  No. Section 232.5 explains the methods available to creditors when determining a consumer’s covered borrower status prior to or at the time the parties enter into a transaction or an account is created. The provision permits a creditor to use its own method to assess covered borrower status, and it provides a safe harbor to a creditor that employs either of two available methods: Using information obtained directly or indirectly from the DMDC database; or obtaining a consumer report from a nationwide consumer reporting agency (or a reseller of the same) containing a statement, code, or similar indicator describing that status. To benefit from the safe harbor provision, a creditor must determine a consumer’s covered borrower status at or before the time of the transaction or the time an account is established and make a record of the determination.
Section 232.5(b)(2)(B) prohibits a creditor from accessing the DMDC database after the time a consumer entered into a transaction or established an account for a specific purpose, namely ‘‘to ascertain whether a consumer had been a covered borrower as of the date of that transaction or as of the date that account was established.’’ Therefore, the plain language of the regulation does not prohibit a creditor or assignee from accessing the DMDC database for other purposes, such as determining whether a previously covered borrower retains that status. However, as stated in § 232.7, other State or Federal laws providing greater protections to covered borrowers may apply to covered transactions under the MLA. Creditors should ensure compliance with any such laws that may apply to them and these transactions.

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