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#2095221 - 08/25/16 02:33 PM
Defense publishing FAQ on MLA regulation Aug. 26.
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The Department of Defense has an "Interpretive rule" for its "Military Lending Act Limitations on Terms of Consumer Credit Extended to Service Members and Dependents" regulation (the MLA regulation at 32 CFR Part 232) queued up for publication tomorrow in the Federal Register. Here's a link to our Top Story: https://www.bankersonline.com/topstory/152365The Interpretive rule takes the form of an FAQ. Spoiler Alert: § 232.8(e) of the MLA regulation "does not prohibit covered borrowers from granting a security interest to a creditor in the covered borrower’s checking, savings, or other financial account, provided that it is not otherwise prohibited by applicable law and the creditor complies with the MLA regulation including the limitation on the MAPR to 36 percent." [Question #17]
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#2095241 - 08/25/16 03:12 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Northern California
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Wow! With 38 days to spare!
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#2095246 - 08/25/16 03:20 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Does question 18 mean that a right of offset is ok?
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#2095248 - 08/25/16 03:24 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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That's what it looks like to me, but I'm going to run it past counsel.
Last edited by RR Becca; 08/25/16 03:31 PM. Reason: typo
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#2095249 - 08/25/16 03:26 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Ok thanks.
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#2095251 - 08/25/16 03:28 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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No. You can take a statutory security interest. The right to offset is not a statutory security interest. But do check with bank counsel.
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#2095253 - 08/25/16 03:32 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Thanks John. So to your reading, the prohibition on the right of offset remains on a loan to a covered borrower?
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#2095263 - 08/25/16 03:43 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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"Thus, for example, a covered borrower ay grant a security interest in funds deposited in a checking, savings, or other financial account after the extension of credit in an account established in connection with the consumer credit transaction."
Doesn't this still mean that we have to grant the loan first, deposit funds and then secure the funds?
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#2095264 - 08/25/16 03:44 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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What the heck is a "savings" clause?
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#2095265 - 08/25/16 03:46 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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CU Lady: I didn't take it that way....i took the language that preceded the part you quoted as meaning the bank could still make a loan secured by a deposit account and that statement just clarified that you could also take funds deposited after the fact.
Last edited by raitchjay; 08/25/16 03:47 PM. Reason: clarify that i'm responding to CU Lady
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#2095268 - 08/25/16 03:53 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Raitchjay - Ahhh okay. So you can do a share/cd secured loan as normal, even if funds were in the account prior to the loan. Whew! Loan ops will be happy to hear that!
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#2095269 - 08/25/16 03:53 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
mtngrrl
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What the heck is a "savings" clause? Looks like you can put the language for covereds and non-covered in the same loan agreement...outing the applicability to one of the groups without voiding the whole thing. I was thinking "savings" as in "not checking."
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#2095270 - 08/25/16 03:54 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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That's my interpretation anyway; someone else can chime in if they read it differently.
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#2095279 - 08/25/16 04:14 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
CompliantOkie
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That's how I'm reading it, CO. Our "savings clause," I guess.
Can't thank you enough, John, for providing this for us.
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#2095285 - 08/25/16 04:37 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Yes--thank you John for being so quick to get this to us!
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#2095312 - 08/25/16 06:03 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Thanks for the heads up John!
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#2095313 - 08/25/16 06:08 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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out of the frying pan...
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Thanks, John!
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#2095454 - 08/26/16 01:55 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
raitchjay
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That's my interpretation anyway; someone else can chime in if they read it differently. That would be my interpretation as well. The 2nd paragraph on question 17 makes it more confusing then it needs to be.
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#2095495 - 08/26/16 03:32 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
ComplyGuy
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That's my interpretation anyway; someone else can chime in if they read it differently. That would be my interpretation as well. The 2nd paragraph on question 17 makes it more confusing then it needs to be. And that stupid 2nd paragraph is what I keep coming back to! I really don't understand what it is referring to.
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#2095502 - 08/26/16 03:36 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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It is kinda stupid--to me it's just saying "you can also take an interest in a CD or other deposit account AFTER the loan consummates".....as if anyone would want to do that. I don't see why that needed any clarification though.
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#2095612 - 08/26/16 07:39 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
peony
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That is not how I interpret this question.
You provide the TIL disclosure which takes care of the written requirements, then you explain the disclosures to the customer orally to satisfy the oral requirement.
Last edited by NSF; 08/26/16 07:40 PM. Reason: This is a reply to peony
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#2095687 - 08/29/16 01:03 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
Minion
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That's how I read it, too. If you finance the purchase only....exception. Financing the underwater part of the last car or even refinancing a car loan are now covered products.
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#2095866 - 08/29/16 07:55 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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This new "hybrid purchase money" concept is a major shift! I was looking forward to updated guidance only to see this and realize this has created another issue. The interpretive rule indicates that if a creditor extends credit in an amount greater than the purchase price then this would not be included under the exemption for purchase money loans. What??? How does this impact underwater trade-in, car warranties, etc.? I would think this would have a major impact on the indirect auto side as most I have seen initially determined this would not be applicable. Any thoughts?
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#2095952 - 08/30/16 01:07 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Add to that we are a month away from the effective date and just now getting this new interpretation. I have yet to see any major discussions from the indirect auto industry, but I have to think that this is all still being digested and many are still unaware of this recent shift.
Minion, have you thought about how you will be addressing this on the indirect auto side?
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#2096022 - 08/30/16 03:56 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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New car sales price $10,000
Trade-in Value $3,000 Trade-in payoff $3,500
Requested financing $10,500
If that is the scenario you are discussing than the rule makes sense because the applicant has negative equity currently and will have negative equity as a result of the new loan and they are no better off. I can see that the spirit of the MLA works there because the DoD wants the SMs protected, especially from shady deals.
Personally, my experience with the used car market would indicate some dealers just up the purchase price to cover trade-in. Depending on how the bank values the collateral it may or may not work.
All that said, guidance is needed on the guidance as to what constitutes "additional financing that is unrelated to the purchase." The trade-in is obviously related to the deal, albeit in a negative way, but so are warranties which are often purchased with a sale. But read conservatively the loan amount would be greater than the purchase price and that may be an inhibitor here.
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#2096060 - 08/30/16 04:54 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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I wasn't putting much thought into our indirect dealer loans as I figured purchase $$--not covered...but now...
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#2096229 - 08/31/16 12:50 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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out of the frying pan...
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Our state has an up-front "title tax" that is a lump sum due at the time of purchase whether the car is bought from a dealer or from a private individual. Would financing that tax amount (or any other dealer fees, etc.) in addition to the base purchase amount meet that 'cash out' scenario and kick a loan out of the purchase exemption?
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#2096235 - 08/31/16 01:13 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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So, overdraft products are excluded from MLA?
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#2096261 - 08/31/16 02:22 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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1. Does anyone have a generalized oral disclosure they'd be willing to share? 2. Consumer credit states "more than 4 installments". Does this mean 12M single pay loans would not be a covered loan?
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#2096338 - 08/31/16 05:39 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Tracey, it depends on what type of overdraft product. If it's line of credit product, you may not be off the hook. Other types of arrangements appear to safe though.
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#2096360 - 08/31/16 06:29 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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What about a processing fee on a vehicle purchase loan? Purchase price is 10,000 and bank charges a $100 processing fee on all consumer loans. The fee is financed and it is now $10,100. Is it now a covered loan?
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#2096379 - 08/31/16 07:05 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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That's how it's reading to me! I certainly hope that's not the intent, I'd love to be wrong on that.
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#2096389 - 08/31/16 07:18 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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So what is the consensus on this: if borrower wants $20,000 to purchase new car, and wants to finance fees such that the loan amount is $20,500...covered loan? I'm seeing lots of us with similar questions on this and we need to get it figured out i guess.
Last edited by raitchjay; 08/31/16 07:19 PM.
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#2096395 - 08/31/16 07:23 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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I mean.....my thought on all of these ones like this is that they would be covered loans......the loan amount would exceed the purchase price. I guess i'm just hoping for someone to say that's not right.
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#2096411 - 08/31/16 07:41 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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I think I'm with you, Okie. I can't imagine that the intent is that if you charge a loan fee the loan is no longer exempt. I'm with you that a loan fee, or title fee, is not "unrelated to the purchase."
We have training scheduled next week. Hopefully I don't have to tell the lenders every loan is covered unless it is secured by a dwelling (due to our charging a loan fee).
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#2096412 - 08/31/16 07:42 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
CompliantOkie
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2. Consumer credit states "more than 4 installments". Does this mean 12M single pay loans would not be a covered loan? Read the whole sentence....it's an "or" scenario. *more than four installments OR *subject to a finance charge Single pay notes are subject to a finance charge.
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#2096414 - 08/31/16 07:47 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
ComplyGuy
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I think I'm with you, Okie. I can't imagine that the intent is that if you charge a loan fee the loan is no longer exempt. I'm with you that a loan fee, or title fee, is not "unrelated to the purchase."
We have training scheduled next week. Hopefully I don't have to tell the lenders every loan is covered unless it is secured by a dwelling (due to our charging a loan fee).
First, i hope you're right...but it's not the "charging" of a fee...it's the financing of the fee that i'm concerned about. I mean....you could always tell the borrower they have to pay bank fees in cash.
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#2096415 - 08/31/16 07:49 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
CompliantOkie
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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?
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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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#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...
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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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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...
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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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"...Somewhere in Middle Americ...
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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? 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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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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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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#2096644 - 09/01/16 06:26 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Power Poster
Joined: Sep 2004
Posts: 5,249
out of the frying pan...
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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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Platinum Poster
Joined: Nov 2007
Posts: 767
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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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10K Club
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On the Net
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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
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Joined: Sep 2004
Posts: 5,249
out of the frying pan...
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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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Joined: Aug 2001
Posts: 7,351
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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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#2097273 - 09/07/16 06:14 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Posts: 3,070
Oklahoma
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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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Joined: Sep 2004
Posts: 5,249
out of the frying pan...
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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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10K Club
Joined: Nov 2002
Posts: 20,656
The Swamp
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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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#2097290 - 09/07/16 06:54 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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The Swamp
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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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#2097295 - 09/07/16 06:59 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
RR Joker
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Joined: Sep 2004
Posts: 5,249
out of the frying pan...
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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'. That makes more sense to me than considering negative equity as a term of the purchase.
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#2097303 - 09/07/16 07:11 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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The Swamp
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Yeah...the dealer will often include it simply to make the sale work...but it's not a 'part of' the purchase...it's more of a 'negative concession' of sorts. Now, there could be a loophole in there if there is not a huge [obvious] negative equity and the dealer 'agrees' to just add it to the price and pays the lender off after the deal is done.\ Unless they put forth strict disclosure/accounting/itemization rules out there on non-banks then "where there is a will there will end up a way" will be happening.
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#2097306 - 09/07/16 07:21 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Joined: Nov 2002
Posts: 20,656
The Swamp
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Just curious. When would this ever be okay? [or is it maybe because of overdraft LOC's?] Why wouldn't it typically always be prohibited by Federal Law (Reg E)?
Require an electronic fund transfer to repay a consumer credit transaction, unless otherwise prohibited by law;
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#2097394 - 09/08/16 01:13 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Joined: Aug 2001
Posts: 7,351
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Sorry for my ignorance, but would someone please define the term "negative equity?" This is a new term for me.
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#2097401 - 09/08/16 01:29 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
swiggles
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Joined: Mar 2006
Posts: 1,323
"...Somewhere in Middle Americ...
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Your liability exceeds the value of the asset. I'm trading in a car worth $3,000 but I owe $4,000. I have $1,000 in negative equity that has to be paid from somewhere. Rolling it into the new car loan is one option.
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#2097409 - 09/08/16 01:41 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
CompliantOkie
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Joined: Aug 2001
Posts: 7,351
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I'll never talk management into giving up right of setoff for everybody. They're already having ducks about it for the military folks. Wait! I thought that we still have setoff rights? Where are you reading that?
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#2097410 - 09/08/16 01:43 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Unless something changed, I can tell you that WK has made NUMEROUS changes to the deposit side of things due to this...so I'm thinking we don't have rights...I even saw something about partnership accounts affected...but haven't had a change to dive into all of that. yet..
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#2097411 - 09/08/16 01:45 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
swiggles
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Power Poster
Joined: Sep 2004
Posts: 5,249
out of the frying pan...
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I'll never talk management into giving up right of setoff for everybody. They're already having ducks about it for the military folks. Wait! I thought that we still have setoff rights? Where are you reading that? Well, if you look farther up in this thread you'll see that I thought the Q&A said we could still have setoff, but John said he did not. I sent it to bank counsel and have not yet heard back, but D+H (LaserPro) are taking the stance that we do not. They've written in suppression for setoff language on all MLA covered loans.
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#2097412 - 09/08/16 01:48 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
swiggles
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Joined: Mar 2006
Posts: 1,323
"...Somewhere in Middle Americ...
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Couple of things: 1. Ah! I thought we could use setoff, too. 2. I've never been called too fast before! 3. My boss just asked if I knew if we are planning on sending "the notices to all customers." Can anyone enlighten me? I really hated saying "What notices?"
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#2097453 - 09/08/16 02:42 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Power Poster
Joined: Jan 2003
Posts: 3,070
Oklahoma
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Corny - I don't remember ever hearing about "sending out notices to all customers". I hope your boss dreamed that part. Anyone?
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#2097460 - 09/08/16 02:47 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Power Poster
Joined: Sep 2004
Posts: 5,249
out of the frying pan...
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I'm with you, Corn - what notices?
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#2097462 - 09/08/16 02:49 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
HRH Okie Banker
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"...Somewhere in Middle Americ...
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Turns out this came from the vendor that is selling us new deposit docs so that we are "in compliance and avoiding lawsuits." They want to do an update for deposit recon (that we are good on already) something about UDAAP and MLA compliance. His questions was whether or not we were doing the update and whether or not we were disclosing to all depositors - - so that everyone has the same account agreement.
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#2097536 - 09/08/16 06:47 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Member
Joined: Mar 2011
Posts: 78
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In regards to Q&A #10:
“ The provision permits a creditor to use its own method to assess covered borrower status, and it provides a safe harbor to a creditor that employs either of two available methods: Using information obtained directly or indirectly from the DMDC database; or obtaining a consumer report from a nationwide consumer reporting agency (or a reseller of the same) containing a statement, code, or similar indicator describing that status. To benefit from the safe harbor provision, a creditor must determine a consumer’s covered borrower status at or before the time of the transaction or the time an account is established and make a record of the determination. Section 232.5(b)(2)(B) prohibits a creditor from accessing the DMDC database after the time a consumer entered into a transaction or established an account for a specific purpose, namely ‘‘to ascertain whether a consumer had been a covered borrower as of the date of that transaction or as of the date that account was established.’’
Does this give us safe harbor, if we check the data base prior to the loan “account†being established, ie loan consummation, rather than the initial language of date of application or 30 days prior?
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#2097571 - 09/08/16 08:43 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
Christine81
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Joined: Aug 2001
Posts: 7,351
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Does this give us safe harbor, if we check the data base prior to the loan “account†being established, ie loan consummation, rather than the initial language of date of application or 30 days prior?
I think it does. But this was NOT the opinion of the presenter of an MLA webinar I listened to.
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#2097759 - 09/09/16 06:54 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
swiggles
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Member
Joined: Mar 2011
Posts: 78
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I have listened to two MLA Webinars and that was not their opinion either, which is what makes me concerned. Thanks Swiggles.
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#2099002 - 09/16/16 09:20 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Joined: Apr 2003
Posts: 1,636
snorkeling in warm, clear wate...
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Is anybody aware of a prohibition against checking military status periodically on credit cards and ODLOCs after the determination has been made that we've got a covered borrower? We're checking upfront on new accounts using Transunion to correctly ID covered borrowers on new accounts. We know we have a lot of covered borrowers (military bank) - I was just asked how we identify covered borrowers after the fact with 100% certainty.
The way I'm reading it, the historic lookback prohibition means we don't have to check our current customer base, but if we want to identify formerly covered borrowers that are no longer subject to MLA and remove MLA coverage from their accounts, is that a problem or is it a case of once covered, always covered?
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#2099010 - 09/16/16 10:49 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Power Poster
Joined: Nov 2004
Posts: 5,925
So Cal
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Pippii, I also read that section to mean that we are not to check our current customer base (MLA will not apply to credit originated prior to 10/2/16 anyway, unless covered by prior rule), but we are also not to check customers after origination to determine whether they were covered at the time of origination. The question about checking later to determine whether a borrower is still covered does not seem to be specifically addressed. It would seem permissible as the examples in 232.2(a)(2) state that "this part" no longer applies to consumers who are no longer covered borrowers (so it's not "once covered, always covered"). The only way to know that for sure and be able to rely on such information is through one of the safe harbor verifications, so I think very clear procedures should be written to address subsequent verifications.
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#2099100 - 09/19/16 03:26 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Gold Star
Joined: Sep 2007
Posts: 496
WA
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#10 on the interpretive ruling says: "Therefore, the plain language of the regulation does not prohibit a creditor or assignee from accessing the DMDC database for other purposes, such as determining whether a previously covered borrower retains that status."
We plan on checking monthly or quarterly to determine whether they are still covered borrowers for LOC's and (eventually) credit cards.
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#2099817 - 09/21/16 09:06 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Junior Member
Joined: Aug 2005
Posts: 27
Washington State
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Other than a contract not containing an arbitration clause, can anyone please provide additional information on compliance with 10 USC 987 on other prohibitions? Thank you so much!
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#2099936 - 09/22/16 03:02 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Power Poster
Joined: Oct 2009
Posts: 9,105
OK
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Yes.
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#2099961 - 09/22/16 03:51 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Power Poster
Joined: Aug 2001
Posts: 7,351
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For safe harbor, yes, that's the only way.
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#2101006 - 09/29/16 04:13 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Diamond Poster
Joined: Apr 2003
Posts: 1,636
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The ABA Live Briefing was clear that you can run checks on your database to remove no longer covered borrowers. The historic prohibition is to prevent you from checking their initial status after the fact. They said it makes sense to run status checks going forward on products such as checking accounts.
Next question from me: what are you guys doing about loans with apps taken prior to 10/3 that don't close until 10/3 or later because the customer didn't come in and sign the docs? I was just told we have more than a few in a queue that are ready to sign, but the customer hasn't come in yet. Unsecured 12 month term loans structured to stay under the MAPR limits, so I'm not all that worried about the risk. One of our banks is a military bank, so not unreasonable to assume 80% are covered borrowers.
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#2101036 - 09/29/16 05:36 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
HMS Pippii
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Joined: Mar 2006
Posts: 1,323
"...Somewhere in Middle Americ...
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"a consumer credit transaction or account for consumer credit consummated or established on or after October 3, 2016."
We're tossing those apps in progress into the mix.
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#2101058 - 09/29/16 06:40 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Gold Star
Joined: Dec 2006
Posts: 499
Knee Deep in Regs
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We are "tossing" them in also.
I have read this thread twice and still cannot come to a decision about how the handle negative equity on in-direct loans. I believe we can include negative equity as part of the purchase price, but some of you made good arguments for not including it. For those of you that believe an in-direct sale with negative equity is a covered loan, how are you going to enforce compliance of oral and written disclosures on the dealership when the bank does not receive the completed contract until after the deal is done?
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#2101422 - 10/03/16 03:48 PM
Re: Defense publishing FAQ on MLA regulation Aug. 26.
John Burnett
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Joined: Apr 2003
Posts: 1,636
snorkeling in warm, clear wate...
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That's what we did - everything that hadn't closed on Friday was run through the database and re-documented for closing this week. We had 30+ covered borrowers that popped up.
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