Let's assume that a bank's software is not MLA compliant for one particular loan product offered by the bank. Can the bank continue to offer that product after 10/2 and simply decline anyone applying for the product IF they are covered by the MLA, and not be in violation of any other laws/regulations? For example, in these situations, could the bank check the "Other" box on the adverse action notice and say something like: "Federal law prohibits us from making this loan to a consumer covered by the Military Lending Act"?

But it is Federal law that prohibits you or your software?

There have been arguments made that yes you can. The risk you face: reputation damage when they go to the news station and show them you turned them down because they're in the military/dependent on someone who is. Are they going to come interview you and give you a platform to showcase the DoD forcing your hand, or are they going to paint you as an anti-American villain?

CU Lady, I see your point...would have to massage the wording.

Matt B....I hear you...I'm concerned with this approach too.

Thank you both for responding.

I agree with CULady. You have a software issue, not a Federal Law issue. If nothing else you can manually prepare the required disclosures.

It's your FI responsibility to be compliant. Denying a borrower based on your inability to be complaint is not a valid reason IMO.

Well of course, in the "Other" field on the AAN, you'd put the denial reason as "Covered borrower status", not cite your own failings as the reason.

Terrible idea, in my opinion, and the reason that many shops that don't expect to have many of these loans ever come up are still scrambling to have to figure it out in time. I'll be surprised if we have one or two a year (though the hybrid loan uncertainty could change that opinion), and I'm hopeful that the training required of staff will be "If you see this flag on the credit report, stop, drop, and roll over to this set of procedures that will step by step tell you what to do". We'll see if the lending arm ever sorts out those procedures.

First, I agree it is a terrible idea. But, there is nothing in the MLA that says you can't discriminate against a person because of their employment. You could say "Because of federal regulations this loan product is not offered to active duty servicemembers or dependents."

This would be applicable if you had a marginally profitable product that was offered currently but would not be profitable under MLA restrictions. You'd either terminate the product all together or just for the unprofitable group.

Again, I'm in the camp that sees reputation risk, but I wouldn't dismiss it completely and I think it's healthy to discuss it.

Thank you all for your thoughts. Andy, you hit the nail on the head. We receive a very small number of applications for the product in question. We are all set for all other covered products, but not this one. As you suggested, it does come down to the resources needed to make this product compliant, vs. not offering the product any longer, vs. continuing to offer the product but declining the applications submitted by those who are covered under the MLA. Very unfortunate, but a reality of the new rules.