Support Interest Only and Balloon Repayment on MLA Transactions

Because of the harsh penalties imposed for violating the Military Lending Act (“MLA”), the high probability for broad interpretation benefiting covered borrowers (similar to how the Servicemembers Civil Relief Act has been construed), and the DoD’s expectation that lenders proactively modify MLA transactions to protect covered borrowers, support for transactions and various transaction features has been limited to those that are expressly allowed under the MLA.

This has been done to protect lenders from the possibility that loan document terms or the application of those terms violate the MLA. In the initial Notice of Proposed Rulemaking and Request for Comment, 72 FR 18159, as well as in the Final Rule Publication, 80 FR 43560, the DoD defined balloon payment loans and any other types of loans which have payments which are suddenly higher than previous payments as predatory lending.

For this reason, we do not currently support balloon payment transactions or interest only transactions (as interest only transactions may also have suddenly increased payments). As the DoD singled out these types of transactions as predatory, there are grave concerns about allowing such support for MLA transactions.