Q: The DOD’s final rule states that the requirements of the rule no longer apply if the member is no longer a covered borrower. For example: where a borrower is on active duty when he/she establishes an open-end loan— the open-end loan is covered by the MLA. However, six months later the covered borrower ceases to serve on active duty so the open-end loan is no longer covered by the MLA. What if the member later enters active duty again, while the open-end loan is still active—is the open-end loan again covered by the MLA?
A: Section 232.2(a)(2) of the MLA provides two examples defining whether a loan is covered by the MLA or not depending on the active duty status of the borrower at the time the loan is established. Neither of the examples exactly fits the fact pattern in the above question, but they provide a hint of the answer. In the first example, the borrower is a member of the armed forces, but is not serving on active duty. A closed-end loan opened at that time is not covered by the MLA because the borrower was not on active duty at the time the loan was established. While on active duty, the borrower establishes an open-end loan, which is subject to the MLA.
In the second example, the borrower ceases to serve on active duty one year after the open-end loan was established. The example states that the MLA no longer applies to the open-end loan and also states that the closed-end loan was never subject to the MLA (because at the time the closed-end loan was established the borrower was not serving on active duty, and even though the loan was in existence at the time the borrower went on active duty).
Under the MLA rule, the borrower’s status (whether on active duty or not) at the time the loan is established is the determining factor.
In the above question, the borrower is on active duty when the open-end loan is established. Therefore, the loan is subject to the MLA. At some point, the borrower ceases to serve on active duty so the open-end loan is no longer subject to the MLA. When the borrower enters active duty again, the open-end loan should not be subject to the MLA, because at the time the borrower reenters active duty, the open-end loan was already in existence (similar to the closed-end loan in the first example) and since the loan was in existence at the time the borrower reenters active duty, the credit card account is not subject to the MLA at that time.