An MLA-covered borrower considers a home-purchase loan secured by that dwelling and a $3,000 unsecured loan for household expenses carrying a finance charge. The unsecured loan is subject to Regulation Z and no MLA exclusion applies to it. Which loan is covered consumer credit under the Military Lending Act?
Correct Answer
C) The mortgage is exempt from the Military Lending Act; the personal loan is not
C. The unsecured personal loan is covered; the residential mortgage is excluded. The definition covers qualifying personal, family or household credit with a finance charge or the specified installment arrangement. It separately excludes residential mortgages. The borrower’s covered status does not erase that product exclusion. Scope and exceptions: A residential-mortgage exclusion under MLA does not establish an exemption from other consumer laws. Source: 32 CFR 232.3(f)(1)–(2) — https://www.ecfr.gov/current/title-32/subtitle-A/chapter-I/subchapter-M/part-232/section-232.3
Why This Is the Correct Answer
C. The unsecured personal loan is covered; the residential mortgage is excluded. The definition covers qualifying personal, family or household credit with a finance charge or the specified installment arrangement. It separately excludes residential mortgages. The borrower’s covered status does not erase that product exclusion. Scope and exceptions: A residential-mortgage exclusion under MLA does not establish an exemption from other consumer laws.
Why the Other Options Are Wrong
Option A: The mortgage is covered and the small personal loan falls below the floor
It reverses the treatment and invents a small-dollar floor.
Option B: Both are covered, since the Act reaches every extension of consumer credit there is
It ignores the mortgage exclusion.
Option D: Neither is covered, because the Act applies only to payday-style lending
MLA coverage is not limited to payday products.
Exam Tip
Test the borrower and the credit product separately.
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