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#2096419 - 08/31/16 07:53 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. CompliantOkie
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This makes sense to me. Anything associated with the purchase should not be considered cash out. Even tax, title, dealer fees, negative equity...

Hopefully, we will receive definite clarity.

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Lending to Servicemembers (SCRA, JWNDAA), War, Terrorism
#2096423 - 08/31/16 07:56 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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out of the frying pan...
I think negative equity would be considered cash-out, but I could be wrong.
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#2096425 - 08/31/16 07:57 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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I'm just wondering if the financing of bank fees would be looked at as 'part of the purchase price'. I mean...are they really?
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#2096436 - 08/31/16 08:12 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. RR Becca
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Originally Posted By RR Becca
Originally Posted By CompliantOkie
I think they intend for those scenarios to be excluded but it's ambiguous in the rule. In the FAQ they mention "cash advance" and "
cash out" regarding these hybrid loans and go on to reason that the cash out is not related to the purchase. I think we can make the case that these are not cash out or cash advance loans and they are made related to the purchase. That's my opinion anyway. I'll be recommending to the CO that we exclude those types of loans.

Now if we have a purchase and the loan amount will be used to purchase AND give cash to the customer, we will not exclude those loans.


That makes sense to me. So we are leaning toward:

$12,000 cash price + dealer fees + state tax + bank fees = $14,500 loan amount EXEMPT

$12,000 cash price + dealer fees + state tax + bank fees + $2000 negative equity = $16,500 NOT EXEMPT

That sound right?

That makes sense to me too. That's exactly how I see it. BUT Raitch has a definite point. I doubt we get clarity before October so we're all going to have to make a decision, stick to it and be able to defend it.

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#2096455 - 08/31/16 09:04 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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I think, for the time being, we are not going to treat negative equity as "cash out." We will be operating under the idea that the negative equity is "related to the purchase."

It seems to be a 50/50 split on that thought right now. Maybe we need another poll... smile

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#2096471 - 08/31/16 09:37 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. CULady
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My thought as well on negative equity. Part of the purchase deal.

We shall see...

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#2096502 - 09/01/16 11:54 AM Re: Defense publishing FAQ on MLA regulation Aug. 26. raitchjay
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Originally Posted By raitchjay
I'm just wondering if the financing of bank fees would be looked at as 'part of the purchase price'. I mean...are they really?


I'm going with the idea that I could purchase the car without the bank fee.....so it isn't part of the purchase. Same with negative equity for me. I could walk up with cash and purchase the car with no bank fee and no negative equity on what I'm trading in.

We haven't published a procedure on this, so will be happy to share later when my CO weighs in. Hopefully, we don't split 50/50!

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#2096519 - 09/01/16 01:13 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. CompliantOkie
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Originally Posted By CompliantOkie
Originally Posted By RR Becca
Originally Posted By CompliantOkie
I think they intend for those scenarios to be excluded but it's ambiguous in the rule. In the FAQ they mention "cash advance" and "
cash out" regarding these hybrid loans and go on to reason that the cash out is not related to the purchase. I think we can make the case that these are not cash out or cash advance loans and they are made related to the purchase. That's my opinion anyway. I'll be recommending to the CO that we exclude those types of loans.

Now if we have a purchase and the loan amount will be used to purchase AND give cash to the customer, we will not exclude those loans.


That makes sense to me. So we are leaning toward:

$12,000 cash price + dealer fees + state tax + bank fees = $14,500 loan amount EXEMPT

$12,000 cash price + dealer fees + state tax + bank fees + $2000 negative equity = $16,500 NOT EXEMPT

That sound right?

That makes sense to me too. That's exactly how I see it. BUT Raitch has a definite point. I doubt we get clarity before October so we're all going to have to make a decision, stick to it and be able to defend it.

Until I hear otherwise, this is how we will be doing it.

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#2096523 - 09/01/16 01:24 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. Cornfed Turtle
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Originally Posted By Cornfed Turtle
Originally Posted By raitchjay
I'm just wondering if the financing of bank fees would be looked at as 'part of the purchase price'. I mean...are they really?


I'm going with the idea that I could purchase the car without the bank fee.....so it isn't part of the purchase. Same with negative equity for me. I could walk up with cash and purchase the car with no bank fee and no negative equity on what I'm trading in.

We haven't published a procedure on this, so will be happy to share later when my CO weighs in. Hopefully, we don't split 50/50!


Unfortunately, that was kinda my thought as well.
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#2096538 - 09/01/16 01:49 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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I'm a little late to this conversation but concerning the "hybrid loan" it appears Q&A #2 is being discussed. Did anyone notice that Q&A #2 only addresses 232.3(f)(2)(iii) which is the section that deals with the exception for the purchase of personal property. Section 232.2(f)(2)(ii) deals with the exception for the purchase of motor vehicles and it is not addressed in the Q&A..
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#2096541 - 09/01/16 01:58 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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That's very interesting; that may answer 2 questions at once including why they separate motor vehicles from other personal property. Thanks Dan.
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#2096543 - 09/01/16 02:00 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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based on that information, any loan that is for purchase money for a vehicle, secured by the purchased vehicle including cash advance would still be exempt.

It's personal property that would be covered. Am I understanding that correctly?

UPDATE: just reread the answer for #2 - there is a sentence in there that states 'Section 232.3(f)(2) provides a list of exceptions to paragraph (f)(f), including an exception of any credit transaction that is expressly intended to finance the purchase of personal property when the credit is secured by the property being purchased.'

After that sentence and knowing that the question specifically asked about personal property, I am wondering if the DOD used the personal property as an example saying that the hybrid loans (whether if it's for vehicle or personal property) are not exempt.

Thoughts??
Last edited by peony; 09/01/16 02:25 PM.
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#2096582 - 09/01/16 04:13 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. raitchjay
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Yes, thanks Dan!

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#2096593 - 09/01/16 04:53 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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It's about as clear as mud. A hybrid personal property loan would be very rare for us but if they're considering the financing of fees as hybrid, that would be more common for our vehicle purchase loans.

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#2096644 - 09/01/16 06:26 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
RR Becca Offline
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out of the frying pan...
Well, it isn't at all unusual for us to do a loan to purchase a car and secure it with that car, a boat, and a 4-wheeler. This could be a problem.
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#2096891 - 09/02/16 09:02 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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Not uncommon in our house either. What a mess so late in the game.
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#2096894 - 09/02/16 09:14 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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While I believe the DoD is drawing a definite distinction between personal property and a vehicle, I can see the same opinion falling on a vehicle if there are abuses. Imagine after a few lenders start selling cars for $200, with a $2000 loan and the car repurchased by the dealer immediately for $200. That may be an extreme example, but the DoD wasn't happy that the existing MLA drew a bright line number of days on what was and wasn't a title loan and lenders added a day and rightfully claimed the exemption. The DoD felt this was a way to skirt the intent of the rule. Yes, they drew the line.

So imagine an opinion that says, "we opined on personal property because that is what was asked. But the same rule applies to vehicles..." I do believe that what is "related" to the purchase price could easily include tax, title, license and trade-ins, but there may be more help needed on negative equity issues.

Becca, the issue here, as I read it, is not that additional collateral would be taken, but that additional disbursements (cash) would be made. Securing the vehicle loan with additional collateral should be OK, but consolidating debts on the additional collateral would be problematic as those debts may not qualify for the exemption.
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#2096945 - 09/06/16 12:54 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. Andy_Z
RR Becca Offline
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out of the frying pan...
Originally Posted By Andy Z

Becca, the issue here, as I read it, is not that additional collateral would be taken, but that additional disbursements (cash) would be made. Securing the vehicle loan with additional collateral should be OK, but consolidating debts on the additional collateral would be problematic as those debts may not qualify for the exemption.


I was concerned that the "cash out" on the additional collateral items (assuming they are owned free and clear) would override the purchase exemption for the car.
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#2097231 - 09/07/16 04:25 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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I think I have read some discussions about "over-disclosure." Our head lender wants to know why we can't just consider all of our banks consumer loans (other than dwelling-secured loans) as "covered." In other words, we will get a "status check" on all of those consumer loans without trying to take purchase money loans out of the mix. If we identify a service member or a dependent, we will provide the disclosure and calculate MAPR.

But the head lender is also concerned about giving the "protections," mentioned in the disclosure, when we don't have to.....though my bank doesn't utilize any of the those forbidden prohibitions anyway. And the MAPR for purchase money loans isn't likely to be any higher than the APR.

Any thoughts on this?
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#2097260 - 09/07/16 05:36 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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I am of the same mind as your lender. I see absolutely no downside in over disclosing given the ambiguity of coverage and the low protections provided by the rule. We happen to have the exam team in the bank next week and plan on speaking to them about it. Initially they're saying it affords protections where none are warranted BUT we don't utilize any of the prohibitions in the rule anyway. And I cannot imagine we would have a purchase money loan over the MAPR limit.

Right now unless the exam team says we cannot provide disclosure to all covered borrowers for loans that may or may not be covered i.e. purchase money loans with fees rolled into the loan, we will be providing the disclosure. We will of course not provide the disclosure for the dwelling secured loans.

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#2097273 - 09/07/16 06:14 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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I'm of the same mind as CO and swiggles as to providing the disclosures to all covered borrowers. It seems like it would be much easier on the lending staff if we could get away with that.
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#2097279 - 09/07/16 06:29 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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out of the frying pan...
I'll never talk management into giving up right of setoff for everybody. They're already having ducks about it for the military folks.
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#2097281 - 09/07/16 06:35 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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I think they mean just go ahead and disclose if the people are military/related...not their client base as a whole.
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#2097285 - 09/07/16 06:40 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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out of the frying pan...
Oooooooooh! Yeah...that would make a lot more sense. blush
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#2097290 - 09/07/16 06:54 PM Re: Defense publishing FAQ on MLA regulation Aug. 26. John Burnett
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It appears, at least to me, that the answer to FAQ2 really does means/intend 'cash out' included in the transaction. I don't see where it should be implied to mean any type of fees, taxes, add-on's the customer purchases in conjunction with the sale, with the probable exception of covering negative equity. The reason I feel negative equity would be 'cash out' is the same way as I would consider loaning them more to payout that same 'negative equity' remaining on a loan, or paying off any other loan within that transaction as being 'cash out'.
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