MLA Search

The MLA database was searched with a typo on the last name. The social security and DOB were entered correctly. Is it a violation because the last name was entered incorrectly? Will we still get accurate results with only the SSN and DOB? Although a suffix is not required, it was entered as I instead of II.

The loan already closed. Do we need to re-pull it and re-close the loan?

Thanks,

As far as whether the SSN/DOB would be sufficient if the name was not correct - I will let someone else answer as I have no idea.

Do you need to re-pull it and re-close the loan? I'm not sure how you would re-close the loan apart from doing a new one, which I really doubt is the common practice in this situation. Even if you hadn't run the DOB/SSN on the system, checking the system is your safe harbor, which you would lose if you didn't conduct the check. It's nice to have the safe harbor, but it's still just a safe harbor. As far as going back after the loan closes, I was thinking that wasn't permitted.

If you haven't I would re-run the query with the correct data if you are able, or run it against the SCRA database just to see if the borrower is protected. If you made the loan based on an unprotected status and the borrower is protected, making a new loan with the disclosures and necessary terms may be the best action assuming the borrower wants to do that. If the borrower is not protected, no MLA disclosures or protections were due, so there was nothing wrong as to actions with the borrower.

If you check the status again and the borrower was protected and the disclosures were not made as needed, and the borrower isn't interested in a new loan, just the nearest attorney's office, then you have issues. Technically you should not pull an MLA check now, because the harm is done. That is why (as I see the loan has closed) I also suggest an SCRA check as that still gives you the borrowers status. If you have a spouse or dependent on the loan, the SCRA check is no good.

Staff on the other hand is a different matter and training is in order. Kudos to the person catching the discrepancy.

We re-run it with the correct data and the customer is not protected. but the file is going to include a certificate with a date after the loan closed date which is not allowed.

We currently re-close a loan with new docs when typos/errors are found on the certificate but in this case we were unable to re-close it so we were concerned with having a violation in the file.

Thank You.

Maybe I'm being a little simplistic, but is it a violation if the customer isn't covered under the regulation? Yes, we should always verify and you should perform some re-training so it doesn't reoccur, but is it a regulatory violation?

Skittles, I agree that if they aren't covered, it wouldn't be a violation if you missed it. Plus, checking the database is really just a safe harbor rather than a regulatory requirement. The violation, however, would come if you recheck the MLA database after the loan is closed:

From 232.5(b)(2)(i)(B): (B) Historic lookback prohibited. At any time after a consumer has entered into a transaction or established an account involving an extension of credit, a creditor (including an assignee) may not, directly or indirectly, obtain any information from any database maintained by the Department 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.

Thanks for the information Adam.

I'm 100% with Adam. This is like saying as a precaution the bank makes Reg Z disclosures on business loans. Is it a Reg Z violation if there is an error? No. That's the standard answer and in that example I could see UDAP claim, but the point is, if the requirement didn't apply, you aren't violating it. Internal policy - maybe, the MLA, no.

Re-doing the loan is unnecessary and it doesn't change the fact that the loan before it was out of order.

"Re-doing the loan is unnecessary and it doesn't change the fact that the loan before it was out of order."

Was just saying this to a colleague (on a different compliance topic, but the point stands). I wish i could get rid of this attitude that wants to persist in some that "well, we can fix the screw up on the first loan by starting over". Noo......not really.

Agree RJ. It's like running a stop sign, hitting a car, and backing up to the sign as if it means it didn't happen.

Agreed.

"The violation, however, would come if you recheck the MLA database after the loan is closed:

From 232.5(b)(2)(i)(B): (B) Historic lookback prohibited. At any time after a consumer has entered into a transaction or established an account involving an extension of credit, a creditor (including an assignee) may not, directly or indirectly, obtain any information from any database maintained by the Department 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."



That's what we are doing? Rechecking the database after the loan is closed. Isn't it a violation?

You can't check after the fact. From a technical aspect the harm is done if the loan was made. My point on the isolated case above was, after noting that fact, that the bank would want to know and if the debt was to the SM, not a dependent, they should be on the SCRA database. That one is routinely scrubbed with CIF records.

I don't know what the DoDs intent is on preventing lookbacks unless they feel loans would be made, then checked (hopefully) and then renegotiated or something. I don't see responsible lenders doing that.

Adam made a great point above. This is for a safe harbor. There is no requirement in the law to check this. Policies may have required, and the lender should want to know. Oddly this "requirement" was created because SMs lied about being in the military for fear of being denied or charged higher rates.

So we just discovered one of our branches didn't pull the MLA prior to consummation and the borrower and his wife are covered borrowers. They bought a horse trailer, secured by the horse trailer and we financed in the fees which included credit life. Am I correct that we do not have an exemption because we financed the credit life - exceeded the purchase funds?

If so, is it best to make note in the file of our error and move on?

Unless the loan is under an Ag exemption and not legally subject to Reg Z I would lean towards a "yes, it's a problem."

Possible steps to resolve this are:
1. Determine if it was subject to the MLA
2. Consider a renewal to make it a conforming loan
3. Determine why the error happened and if there are more (repeat 1 & 2 as necessary)
4. Place controls/training to prevent a recurrence