More MLA FAQs; Snowzilla Comes to DC
Written by Brandy Bruyere, Director of Regulatory Compliance
Good morning from snow-buried DC! We hope to fully dig out soon,Â and while NAFCU's offices are closed, the compliance team is working remotely so we'll still be providing direct compliance assistance to our members.Â I wanted to start the week off with some more frequently asked questions on one of 2016Ã¢ÂÂs compliance challenges Ã¢ÂÂ the Military Lending Act. Here are a couple more questions members have been asking aboutÂ open-end credit products.
Our credit union is reviewing its open-end credit products that are covered by the MLA to see if any products exceed the 36% Military Annual Percentage Rate (MAPR) cap. How do we calculate the MAPR?
Section 232.4(c) explains how to calculate the MAPR from a technical standpoint. Generally, the rule requires credit unions to follow Regulation ZÃ¢ÂÂs calculation method for computing the MAPR, as addressed by section 1026.14(c), hereÃ¢ÂÂs an excerpt from the MLA rule:
"(ii) Open-end creditÃ¢ÂÂ
(A) In general. Except as provided in paragraph (c)(2)(ii)(B) of this section, for open-end credit, the MAPR shall be calculated following the rules for calculating the effective annual percentage rate for a billing cycle as set forth in ÃÂ§ 1026.14(c) and (d) of Regulation Z (as if a creditor must comply with that section) based on the charges set forth in paragraph (c)(1) of this section. Notwithstanding ÃÂ§ 1026.14(c) and (d) of Regulation Z, the amount of charges related to opening, renewing, or continuing an account must be included in the calculation of the MAPR to the extent those charges are set forth in paragraph (c)(1) of this section."
Remember that the MAPR includes items that Regulation Z does not, but Regulation ZÃ¢ÂÂs technical approach to accurately calculating the APR is applied for also calculating the MAPR.
We understand that the MAPR includes certain Ã¢ÂÂancillaryÃ¢ÂÂ credit products. For an open-end product, what happens if the member chooses to purchase one of these ancillary products after consummation?
While the rule does not clearly address this question, the rule text is written quite broadly:
Ã¢ÂÂ(c)Â Calculation of the MAPR.Ã¢ÂÂ
(1)Â Charges included in the MAPR.Â The charges for the MAPR shall include, as applicable to the extension of consumer credit:
(i) Any credit insurance premium or fee, any charge for single premium credit insurance, any fee for a debt cancellation contract, or any fee for a debt suspension agreement;
(ii) Any fee for a credit-related ancillary product sold in connection with the credit transaction for closed-end credit or an account for open-end creditÃ¢ÂÂ¦Ã¢ÂÂ
There is a section of the preamble that clarifies that the inclusion of credit ancillary products in the MAPR is not limited only to those products the member purchases at consummation:
Ã¢ÂÂUpon review of the comments submitted on the Proposed Rule and in light of its experience administering the existing rule, the Department has elected to exercise its discretion by generally requiring any fees for credit insurance products or for credit-related ancillary products to be included in the MAPRÃ¢ÂÂ¦
The Department has determined to modify ÃÂ§ 232.4(c)(1)(ii)Ã¢ÂÂ¦to require a creditor to include in the MAPR Ã¢ÂÂfees for credit-related ancillary products sold in connection with and either at or before consummation of the [consumer credit].Ã¢ÂÂ Ã¢ÂÂ¦nothing in the MLA necessarily limits the inclusion in the MAPR of these charges only to those that are sold at the outset of the credit transaction. Particularly insofar as consumer credit now encompasses open-end credit products, the Department has concluded that the MLA should be interpreted to require a creditor to include in the MAPR the fee for any ancillary product Ã¢ÂÂsold with any extension of credit to a [covered borrower]Ã¢ÂÂ so long as that ancillary product is Ã¢ÂÂassociated with the extension of creditÃ¢ÂÂÃ¢ÂÂwhich could arise at any time in an ongoing, open-end account for consumer credit. Accordingly, the Department has determined to amend ÃÂ§ 232.4(c)(1)(ii) so as to require the inclusion in the MAPR of any fee for a credit-related ancillary product sold in connection with the credit transaction for closed-end credit or (at any time in connection with) an account for open-end credit, so long as the consumer was a covered borrower at the time the account was established.Ã¢ÂÂ
This seems to indicate that not only are credit ancillary products sold after consummation included in the MAPR, but that even if the member ceases to be a covered borrower at a later date, the MAPR limitation would continue to apply. However, the definition of "covered borrower" states that theÂ term "does not mean a consumer who (though a covered borrower at the time he or she became obligated on a consumer credit transaction or established an account for consumer credit) no longer is a covered member...or a dependent...of a covered member."Â
Snowzilla. A few news outlets were taking polls about what we should call this snow storm. I know one mainstream weather service selected Ã¢ÂÂWinter Storm JonasÃ¢ÂÂ but all I can think of is that early 2000s boy band and that does not make me think Ã¢ÂÂserious weather event.Ã¢ÂÂ Â One of our local forecasting teams chose Snowzilla and this seems more appropriate (fun fact: Ã¢ÂÂMake Winter Great AgainÃ¢ÂÂ actually won the poll, but forecastersÃ¢ÂÂ prerogative made second-place Snowzilla the winner). Final (unofficial) measurement in Silver Spring, Maryland - 27 inches.
Anyway, Lemmy was thoroughly offended by the snow and had to be coaxed to go outside. Nolan smashed snow with some enthusiasm, and found it so interesting he would not look at the camera!
DoD Military Lending Act Interpretive Guidance Released
The DoD published its interpretative guidance on August 26, 2016 in the Federal Register that may have changed our analysis. NAFCU's Regulatory Compliance team will update the associationÃ¢ÂÂs MLA Compliance Guide in advance of the effective date (October 3, 2016) to account for the new guidance.