California recently enacted the Military and Veteran Consumer Protection Act of 2022 (MVCPA), this act will have an effective date of January 1st, 2023. The act is meant to enhance consumer protections for covered service members and contains many pieces of law in different areas that will strengthen protections for service members. The most notable and impactful change for lenders is that, under certain conditions, the MCPA could void a lenders security interest in property securing a loan to covered members.
The MVCPA does this through an interplay with the Military Lending Act, a federal piece of legislation designed to protect military members. Currently the Military Lending Act exempts from it is coverage loans to buy a personal motor vehicle when the credit extended is secured by the motor vehicle and loans to buy personal property when the credit is secured by the personal property (i.e., a home appliance). Section 5 of the MVCPA adds a section 408.1 to the California’s Military and Veterans Code. This new section effectively closes the MLA exemption and states that a security interest in personal property (other than a motor vehicle, off highway vehicle, trailer, vessel, or aircraft) is void and cannot be perfected if the loan for the property falls under the exemption under the MLA. For instance, a lender would not be able to take or perfect a security interest in a loan to a covered member for something like a home appliance.
The new section also voids security interests in vehicle loans and makes them unable to be perfected if the loan was used to fund the purchase of a credit insurance product or a credit related ancillary product, such as Guaranteed Asset Protection plan. Therefore, if a loan to covered member for a vehicle also included the cost of a GAP insurance premium the lender would not be able to take or perfect a security interest in the vehicle.
Lenders doing business in California should familiarize themselves with the new act and understand the interplay it has with the MLA. The Act comes with a good deal of ambiguity within it and many industry trade groups are seeking clarification on the details of what exactly is covered and excluded under the act; however, it seems unlikely such clarification will be received prior to the acts effective date of January 1st, 2023.