DoD’s Interpretive Guidance on MLA: Part II – Oral Disclosures Can Be Generic
Written by Elizabeth M. Young LaBerge, Senior Regulatory Compliance Counsel
On August 26, 2016, the U.S. Department of Defense (DoD) issued an Interpretive Rule clarifying some, but not all, issues with the MLA. As Ben discussed on Monday, the Interpretive Rule clarifies that the MLA does not prohibit a credit union from exercising its statutory lien. Another clarification that deserve to be highlighted is guidance on making the oral disclosures under section 232.6(d) and the clarification that these can be made in a variety of ways, including generically.
The MLAÃ¢ÂÂs Requirement
Section 232.6(d)(2)(i) requires credit unions to provide oral disclosures, in addition to written disclosures. The oral disclosures must include Ã¢ÂÂthe information required by paragraphs (a)(1) and (3)Ã¢ÂÂ of section 232.6. Section 232.6(a)(1) and (3) read as follows:
Ã¢ÂÂÃÂ§232.6 Mandatory loan disclosures.
(a) Required information. With respect to any extension of consumer credit (including any consumer credit originated or extended through the internet) to a covered borrower, a creditor shall provide to the covered borrower the following information before or at the time the borrower becomes obligated on the transaction or establishes an account for the consumer credit:
(1) A statement of the MAPR applicable to the extension of consumer credit;
(2) Any disclosure required by Regulation Z, which shall be provided only in accordance with the requirements of Regulation Z that apply to that disclosure; and
(3) A clear description of the payment obligation of the covered borrower, as applicable. A payment schedule (in the case of closed-end credit) or account-opening disclosure (in the case of open-end credit) provided pursuant to paragraph (a)(2) of this section satisfies this requirement.Ã¢ÂÂ 32 C.F.R. ÃÂ§ 232.6(a). (Emphasis added.)
While the preamble to the final rule provided clear guidance on how to provide the Ã¢ÂÂstatement of the MAPR,Ã¢ÂÂ it has been less clear how to provide a Ã¢ÂÂclear description of the payment obligation,Ã¢ÂÂ especially with regard to open-end credit. For open-end credit, the regulation states to provide an Ã¢ÂÂaccount-opening disclosureÃ¢ÂÂ¦provided pursuant to paragraph (a)(2),Ã¢ÂÂ i.e., provided pursuant to Regulation Z. Unlike with closed-end credit, where section 1026.18(g) contains a specific requirement for disclosing the Ã¢ÂÂpayment schedule,Ã¢ÂÂ there is no specific disclosure in section 1026.6 that pertains to Ã¢ÂÂpayment obligationÃ¢ÂÂ or Ã¢ÂÂpayment scheduleÃ¢ÂÂ with regard to open-end credit. Without a specific citation or provision of the Ã¢ÂÂaccount-opening disclosureÃ¢ÂÂ provided under Regulation Z, credit unions were facing the daunting task of reading aloud all the disclosures required under section 1026.6 of Regulation Z.
Clarification from the DoD
Question 12 in the DoDÃ¢ÂÂs recently released Interpretive Rule clarifies that reading all of the memberÃ¢ÂÂs account-opening disclosure does satisfy the rule, but it is not the only way to comply with section 232.6(d)(2).
Ã¢ÂÂ12. How may a creditor orally provide the payment obligation disclosure required under 32 CFR 232.6(a)(3) to meet the requirements of 32 CFR 232.6(d)(2)?
Answer: Section 232.6(a)(3) requires a creditor to provide to a covered borrower, before or at the time the borrower becomes obligated on the transaction or establishes an account for the consumer credit, a clear description of the payment obligation of the covered borrower, as applicable. A payment schedule (in the case of closed-end credit) or an account-opening disclosure (in the case of open-end credit) provided pursuant to the requirement to provide Regulation Z disclosures satisfies this obligation. Therefore, a creditor may orally provide the information in a payment schedule or an account-opening disclosure to a covered borrower. However, an oral recitation of the payment schedule or the account-opening disclosure is not the only way a creditor may comply with ÃÂ§Ã¢ÂÂ232.6(a)(3). A creditor may also orally provide a clear description of the payment obligation of the covered borrower by providing a general description of how the payment obligation is calculated or a description of what the borrower's payment obligation would be based on an estimate of the amount the borrower may borrow. For example, a creditor could generally describe how minimum payments are calculated on open-end credit plans issued by the creditor and then refer the covered borrower to the written materials the borrower will receive in connection with opening the plan. Alternatively, a creditor could choose to generally describe borrowers' obligations to make a monthly, bi-monthly, or weekly payment as the case may be under the borrowers' agreements.
Neither the MLA nor the MLA regulation specifies particular content or format for the requirement of a clear, oral description of the payment obligation. Also, nothing in the MLA or the MLA regulation requires that the clear description of the payment obligation provided in writing must be the same as the oral disclosure, provided that both disclosures are clear and accurate. As explained in the supplementary information to the Department's July 2015 Final Rule, the Department's approach has been to interpret the MLA's oral disclosure requirement in a manner that provides creditors Ã¢ÂÂstraightforward mechanismsÃ¢ÂÂ that afford Ã¢ÂÂlatitude to develop the same (or consistent) systems to orally provide the required disclosuresÃ¢ÂÂregardless of the particular context . . .Ã¢ÂÂÃ¢ÂÂ[80 FR 43588].The requirement of a clear, oral payment obligation disclosure has sufficient breadth that creditors may choose a variety of acceptable oral disclosure compliance strategies. Thus, under the Department's approach, a generic oral description of the payment obligation may be provided, even though the disclosure is the same for borrowers with a variety of consumer credit transactions or accounts.Ã¢ÂÂ 81 Fed. Reg. 58846, 58843. (Emphasis added.)
So, the guidance indicates two, non-exclusive examples of how a credit union can make disclosures more briefly:
- [A] creditor could generally describe how minimum payments are calculated on open-end credit plans issued by the creditor and then refer the covered borrower to the written materials the borrower will receive in connection with opening the plan.
- [A] creditor could choose to generally describe borrowers' obligations to make a monthly, bi-monthly, or weekly payment as the case may be under the borrowers' agreements.
Prerecorded Disclosures May Be Possible
Importantly, the guidance also indicates that these disclosures can be made generically, with the same information being provided for borrowers with a variety of consumer credit transactions or accounts. Many credit unions have contacted NAFCUÃ¢ÂÂs Regulatory Compliance team about whether it is possible to provide MLA oral disclosures via a 1-800 number and completely pre-recorded messages.
Now that the DoD has clarified that generic messages that do not address a covered borrowerÃ¢ÂÂs specific loan terms are permissible, this could open the door to prerecorded disclosures, which may relieve some of the burden of MLA compliance. A credit union may wish to have an attorney review any prerecorded oral disclosure to ensure the language provides a sufficient clear description of the covered borrowerÃ¢ÂÂs payment obligation under the guidance provided by the DoD.
NAFCUÃ¢ÂÂs Regulatory Compliance Team is continuing to review the guidance to understand its full impact on credit unions and will make necessary updates to our Military Lending Act Guide in the coming weeks. Currently available resources can be found here at our MLA Compliance landing page.