Skip to content
GeoDataVision
Thread Options
#2098462 - 09/14/16 05:53 PM MLA- Indirect Loans
Jade'sFire Offline
Gold Star
Jade'sFire
Joined: Apr 2012
Posts: 369
Yaven IV
Hopefully someone with more operational experience with indirect loans can help me out here!

In the situation of an indirect loan, wouldn't the bank receive all info after the transaction is already completed? For instance, if a person goes out and buys a car and finances the purchase along with an additional extended warranty and other fees... how does the bank comply with the covered borrower checks and written and verbal disclosures? By the time the bank is given the info the transaction has already occurred.
_________________________
"It's time for the Jedi to end."
Luke Skywalker

Return to Top
Lending to Servicemembers (SCRA, JWNDAA), War, Terrorism
#2098465 - 09/14/16 06:00 PM Re: MLA- Indirect Loans Jade'sFire
AngelMae CRCM Offline
Member
Joined: Aug 2012
Posts: 68
Indiana
This is where we are right now as well. Asking the dealer to refund fees will not work and the bank does not want to consider refunding fees either. No matter which way it goes-it is already out of compliance once it hits us if it is a covered borrower.

Return to Top
#2098490 - 09/14/16 06:18 PM Re: MLA- Indirect Loans Jade'sFire
CULady Offline
Gold Star
Joined: Sep 2007
Posts: 495
WA
An indirect loan should be exempt. It is a purchase where the loan will be secured by the vehicle being purchased.

Is there a reason you would think an indirect loan would be covered?

Return to Top
#2098492 - 09/14/16 06:21 PM Re: MLA- Indirect Loans Jade'sFire
AngelMae CRCM Offline
Member
Joined: Aug 2012
Posts: 68
Indiana
If they are financing GAP, cash out, or other ancillary product, it becomes a hybrid loan and no longer exempt.

Return to Top
#2098493 - 09/14/16 06:21 PM Re: MLA- Indirect Loans Jade'sFire
ScoutLaRue Offline
Member
Joined: Jul 2016
Posts: 73
I am also wondering if this is the case. However, we'd know ahead of time if we had a covered borrower at application...it what just be how to proceed that I'm getting hung up.

Return to Top
#2098496 - 09/14/16 06:26 PM Re: MLA- Indirect Loans Jade'sFire
AngelMae CRCM Offline
Member
Joined: Aug 2012
Posts: 68
Indiana
From the recent guidance published-Question 2.
2. Does credit that a creditor extends for the purpose of purchasing personal property,
which secures the credit, fall within the exception to “consumer credit” under 32
CFR 232.3(f)(2)(iii) where the creditor simultaneously extends credit in an amount
greater than the purchase price?

Answer: No. Section 232.3(f)(1) defines “consumer credit” as credit extended to
a covered borrower primarily for personal, family, or household purposes that is subject
to a finance charge or payable by written agreement in more than four installments.
Section 232.3(f)(2) provides a list of exceptions to paragraph (f)(1), including an
exception for any credit transaction that is expressly intended to finance the purchase of
personal property when the credit is secured by the property being purchased. A hybrid
purchase money and cash advance loan is not expressly intended to finance the purchase
of personal property, because the loan provides additional financing that is unrelated to
the purchase. To qualify for the purchase money exception from the definition of
consumer credit, a loan must finance only the acquisition of personal property. Any
credit transaction that provides purchase money secured financing of personal property
along with additional “cash-out” financing is not eligible for the exception under
§ 232.3(f)(2)(iii) and must comply with the provisions set forth in the MLA regulation.

Return to Top
#2098499 - 09/14/16 06:32 PM Re: MLA- Indirect Loans Jade'sFire
ScoutLaRue Offline
Member
Joined: Jul 2016
Posts: 73
Ok, so as long as they aren't getting a "cash-out", it is not covered. Phew. I think I'm getting myself confused. Thanks for your help!

Return to Top
#2098504 - 09/14/16 06:45 PM Re: MLA- Indirect Loans Jade'sFire
Jade'sFire Offline
Gold Star
Jade'sFire
Joined: Apr 2012
Posts: 369
Yaven IV
So are we to interpret that "cash out" means literal paper money going back to the borrower?

What about loans were a dealer pays off the borrower's current car loan by financing that balance into the new car purchase loan? That would be a hybrid loan in my opinion and be covered. How would the bank be able to comply with the covered borrower check and disclosure requirements prior to the consummation of the transaction?
_________________________
"It's time for the Jedi to end."
Luke Skywalker

Return to Top
#2098514 - 09/14/16 07:17 PM Re: MLA- Indirect Loans Jade'sFire
AngelMae CRCM Offline
Member
Joined: Aug 2012
Posts: 68
Indiana
We are interpreting it to mean anything that is NOT purely the purchase of the car and fees directly related to that loan. So with that, loan origination and dealer fees would be ok-but credit insurance or GAP or paying off another loan with this loan would knock it out of the exemption. Problem is dealers are not going to check, and we won't know of a covered borrower until after the fact-same as Jade.

"To qualify for the purchase money exception from the definition of
consumer credit, a loan must finance only the acquisition of personal property"

Return to Top
#2098519 - 09/14/16 07:39 PM Re: MLA- Indirect Loans AngelMae CRCM
CULady Offline
Gold Star
Joined: Sep 2007
Posts: 495
WA
Another thought... The interpretative ruling says says PERSONAL PROPERTY. They don't say VEHICLE. There are two specific exemptions in the reg that spell out vehicle and personal property. To me, they are two separate things according to the reg. Not sure how others want to interpret that...

For us, we are, for the moment, considering negative equity and gap, etc to be part of the purchase. If we have a direct RV loan that requests cash out, then we will consider it a covered loan.

Of course this is all subject to change depending on what they come up with next... crazy
Last edited by CULady; 09/14/16 07:41 PM. Reason: Clarifications
Return to Top
#2098533 - 09/14/16 08:06 PM Re: MLA- Indirect Loans CULady
Ski Offline
Platinum Poster
Joined: May 2003
Posts: 639
South Louisiana
If we have a direct RV loan that requests cash out, then we will consider it a covered loan.

Yes, you would have to consider it a covered loan, since the interpretive rule Q&A # 19 stated that motor homes, recreational vehicles (RV's), golf carts and motor scooters are NOT considered vehicles under MLA.

Return to Top
#2098600 - 09/15/16 12:11 PM Re: MLA- Indirect Loans CULady
RR Becca Offline
Power Poster
RR Becca
Joined: Sep 2004
Posts: 5,245
out of the frying pan...
Originally Posted By CULady
Another thought... The interpretative ruling says says PERSONAL PROPERTY. They don't say VEHICLE. There are two specific exemptions in the reg that spell out vehicle and personal property. To me, they are two separate things according to the reg. Not sure how others want to interpret that...


I was discussing this with a consultant yesterday and he opined that the rule was written for finance companies (hence the need to clarify what counted as a vehicle and what didn't) and that banks just got roped in at the last minute so they didn't change any of the language to make it clearer for the banks.
_________________________
You call it ADD. I call it multi-tasking.

Return to Top
#2098677 - 09/15/16 04:18 PM Re: MLA- Indirect Loans Ski
AngelMae CRCM Offline
Member
Joined: Aug 2012
Posts: 68
Indiana
RV's are not considered vehicles under MLA-but they would be considered "personal property" correct? Therefore as long as secured by the RV-exempt (barring cash out, etc.). It is my interpretation that these do not fall under the vehicle exemption but do fall under the personal property one. I guess this is to say, not all personal property is a vehicle but all vehicles are personal property??

Definition of personal property (from Webster's dictionary)
- property other than real property consisting of things temporary or movable
Last edited by AngelMae CRCM; 09/15/16 04:21 PM. Reason: clarification
Return to Top
#2163735 - 02/08/18 08:28 PM Re: MLA- Indirect Loans Jade'sFire
bcompliance Offline
Diamond Poster
Joined: Sep 2014
Posts: 1,252
Since the question and answers were updated on 12/14/17 to include the purchase of a vehicle that also includes a credit product a covered loan, what are others doing to comply with this? How do you ensure the borrower gets the disclosures and the MAPR is not over 36%?

2. [Updated 12/14/17] Does credit that a creditor extends for the purpose of purchasing a motor vehicle or personal property, which secures the credit, fall within the exception to “consumer credit” under 32 CFR 232.3(f)(2)(ii) or (iii) where the creditor simultaneously extends credit in an amount greater than the purchase price of the motor vehicle or personal property?
Answer: The answer will depend on what the credit beyond the purchase price of the motor vehicle or personal property is used to finance. Generally, financing costs related to the object securing the credit will not disqualify the transaction from the exceptions, but financing credit-related costs will disqualify the transaction from the exceptions.

Section 232.3(f)(1) defines “consumer credit” as credit offered or extended to a covered borrower primarily for personal, family, or household purposes that is subject to a finance charge or payable by written agreement in more than four installments. Section 232.3(f)(2) provides a list of exceptions to paragraph (f)(1), including an exception for any credit transaction that is expressly intended to finance the purchase of a motor vehicle when the credit is secured by the vehicle being purchased and an exception for any credit transaction that is expressly intended to finance the purchase of personal property when the credit is secured by the property being purchased.

A credit transaction that finances the object itself, as well as any costs expressly related to that object, is covered by the exceptions in § 232.3(f)(2)(ii) and (iii), provided it does not also finance any credit-related product or service. For example, a credit transaction that finances the purchase of a motor vehicle (and is secured by that vehicle), and also finances optional leather seats within that vehicle and an extended warranty for service of that vehicle is eligible for the exception under § 232.3(f)(2)(ii). Moreover, if a covered borrower trades in a motor vehicle with negative equity as part of the purchase of another motor vehicle, and the credit transaction to purchase the second vehicle includes financing to repay the credit on the trade-in vehicle, the entire credit transaction is eligible for the exception under § 232.3(f)(2)(ii) because the trade-in of the first motor vehicle is expressly related to the purchase of the second motor vehicle. Similarly, a credit transaction that finances the purchase of an appliance (and is secured by that appliance), and also finances the delivery and installation of that appliance, is eligible for the exception under § 232.3(f)(2)(iii).

In contrast, a credit transaction that also finances a credit-related product or service rather than a product or service expressly related to the motor vehicle or personal property is not eligible for the exceptions under § 232.3(f)(2)(ii) and (iii). For example, a credit transaction that includes financing for Guaranteed Auto Protection insurance or a credit insurance premium would not qualify for the exception under § 232.3(f)(2)(ii) or (iii). Similarly, a hybrid purchase money and cash advance credit transaction is not expressly intended to finance the purchase of a motor vehicle or personal property because the credit transaction provides additional financing that is unrelated to the purchase. Therefore, any credit transaction that provides purchase money secured financing of a motor vehicle or personal property along with additional “cashout” financing is not eligible for the exceptions under § 232.3(f)(2)(ii) and (iii) and must comply with the provisions set forth in the MLA regulation.
_________________________
CRCM, CAMS

Return to Top
#2164109 - 02/12/18 07:06 PM Re: MLA- Indirect Loans Jade'sFire
CULady Offline
Gold Star
Joined: Sep 2007
Posts: 495
WA
We were able to upload our MLA form to the indirect platform and require the dealers to give out the form to any Covered Borrowers. They are also asked to upload a copy of the disclosures to the documents. Luckily our indirect platform already pulls the covered borrower information from the credit bureau and we will calculate MAPR on covered loans, with GAP, etc. added, prior to funding.

I have heard of various others that will not allow GAP, etc. if they are a covered borrower, thus keeping the exemption and then forms will not be required.

I am interested to see how everyone else is handling this!

Return to Top
#2166217 - 02/28/18 08:13 PM Re: MLA- Indirect Loans Jade'sFire
bcompliance Offline
Diamond Poster
Joined: Sep 2014
Posts: 1,252
CULady - what indirect platform are you using? I have not found ours to be able to calculate the MAPR...
_________________________
CRCM, CAMS

Return to Top
#2170132 - 03/26/18 06:45 PM Re: MLA- Indirect Loans Jade'sFire
CULady Offline
Gold Star
Joined: Sep 2007
Posts: 495
WA
BC: Sorry, just saw this! We used Credit Union Direct Lending (CUDL) but they can't calculate MAPR either, we had set thresholds for the dealers. Basically we had calculated if they add GAP at $XXX and their loan was for $XX,XXX and their maximum rate would be XX% and found those that would be likely to breach the 36%. Not ideal, but it was a "business decision."

And that is now all a moot point as we have now changed our indirect procedures and are now not purchasing the contracts if they are a Covered Borrower and have GAP based on conversations with legal counsel about the legality of purchasing these sorts of loans from the dealers.
Last edited by CULady; 03/26/18 06:47 PM. Reason: Typo
Return to Top
#2170139 - 03/26/18 07:04 PM Re: MLA- Indirect Loans Jade'sFire
bcompliance Offline
Diamond Poster
Joined: Sep 2014
Posts: 1,252
Thanks for the response. That was the route we went also.
_________________________
CRCM, CAMS

Return to Top

Moderator:  Andy_Z