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Interpretive Rule: Questions and Answers


This interpretive rule was published August 26, 2016, at 81 FR 58840, and amended December 14, 2017, by an interpretive rule published at 82 FR 58739, and by an interpretive rule published February 28, 2020, at 85 FR 11842. It provides guidance on certain questions the Department has received regarding compliance with the July 2015 Final Rule.


1. What types of overdraft products are within the scope of 32 CFR 232.3(f) defining “consumer credit”?

Answer: The MLA regulation generally directs creditors to look to provisions of TILA and its implementing regulation, Regulation Z, in determining whether a product or service is considered “consumer credit” for purposes of the MLA. Also, the supplementary information to the July 2015 Final Rule discusses coverage of overdraft products.

The MLA regulation defines “consumer credit” as credit offered or extended to a covered borrower primarily for personal, family or household purposes that is either subject to a finance charge or payable by a written agreement in more than four installments, with some exceptions. The exceptions include: Residential mortgage transactions; purchase money credit for a vehicle or personal property that is secured by the purchased vehicle or personal property; certain transactions exempt from Regulation Z (not including transactions exempt under 12 CFR 1026.29); and credit extended to non-covered borrowers consistent with 32 CFR 232.5(b). Although coverage by the MLA and the MLA regulation is not completely identical to that of TILA and Regulation Z, the July 2015 Final Rule amends the definition of consumer credit under the MLA to be more consistent with how credit is defined under TILA. The supplementary information to the July 2015 Final Rule states:

"As proposed, the Department is amending its regulation so that, in general, consumer credit covered under the MLA would be defined consistently with credit that for decades has been subject to TILA, namely: Credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and that is (i) subject to a finance charge or (ii) payable by a written agreement in more than four installments."

The MLA regulation also defines “closed-end credit” and “open-end credit” with express references to the definitions of the same terms in Regulation Z.

The supplementary information to the July 2015 Final Rule illustrates how to apply these standards specifically with respect to overdraft products and services. It states that consistent with Regulation Z, an overdraft line of credit with a finance charge is a covered consumer credit product when: It is offered to a covered borrower; the credit extended by the creditor is primarily for personal, family, or household purposes; it is used to pay an item that overdraws an asset account and results in a fee or charge to the covered borrower; and, the extension of credit for the item and the imposition of a fee were previously agreed upon in writing. The supplementary information further states that other types of overdraft products not pursuant to a written agreement typically are not covered consumer credit “because Regulation Z excludes from `finance charge' any charge imposed by a creditor for credit extended to pay an item that overdraws an asset account and for which the borrower pays any fee or charge, unless the payment of such an item and the imposition of the fee or charge were previously agreed upon in writing.”?

Thus, whether or not a particular overdraft product or service is “consumer credit” under the MLA regulation depends on whether the product or service meets each element of the definition of “consumer credit” and whether an exception applies.

2. [Updated 2/28/2020] 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)(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 subparagraph (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.

3. Under 32 CFR 232.4(b), are creditors permitted to waive fees or periodic charges at the end of a billing cycle or earlier for open-end credit, in order to prevent a borrower from being assessed a military annual percentage rate (MAPR) in excess of 36 percent during that billing cycle?

Answer: Yes. Section 232.4(b) requires that a creditor may not impose an MAPR greater than 36 percent in connection with an extension of consumer credit that is closed-end credit or in any billing cycle for open-end credit. In an open-end credit account, a covered borrower's use of a line of credit might, under certain circumstances, give rise to the imposition of a combination of fees and/or periodic charges that would cause the MAPR to exceed the limit in § 232.4(b). A creditor can comply with § 232.4(b) by designing a combination of periodic rates and fees that cannot possibly result in an MAPR greater than 36 percent. Nevertheless, nothing in 32 CFR part 232 prohibits a creditor from complying by waiving fees or finance charges, either in whole or in part, in order to reduce the MAPR to 36 percent or below in a given billing cycle. Thus, a creditor could alternatively comply by not imposing charges in excess of 36 percent MAPR that would otherwise be permitted under the credit agreement.

4. Are fees that a creditor is required to pay by law and passes through to a covered borrower required to be included in the calculation of the MAPR?

Answer: 32 CFR 232.4(c)(1) details the charges that must be included in the calculation of the MAPR. Among the charges that must be included are finance charges associated with the consumer credit. Finance charges are defined by § 232.3(n) to mean a “finance charge” in Regulation Z. If such fees are considered “finance charges” under Regulation Z, then such fees must be included in the calculation of the MAPR, unless they are bona fide fees charged to a credit card account that are excludable under § 232.4(d). However, if the fees are not “finance charges” under Regulation Z, then they may be excluded from the calculation of the MAPR, provided they do not qualify for any of the other categories of charges listed under § 232.4(c)(1).

5. For open-end credit, what constitutes a situation where the MAPR cannot be calculated because there is “no balance” in the billing cycle under 32 CFR 232.4(c)(2)(ii)(B)?

Answer: Section 232.4(c)(2)(ii)(B) specifically provides that for open-end credit, if the MAPR cannot be calculated in a billing cycle because there is “no balance” in the billing cycle, a creditor may not impose any fee or charge during that billing cycle, except for a participation fee that complies with the limitations set forth in § 232.4(c)(2)(ii)(B). Because the provision is tied to whether the MAPR can be calculated based on whether there is a balance in the billing cycle, creditors that impose fees or charges that are excluded from the calculation of the MAPR during a particular billing cycle are not subject to the limitations in § 232.4(c)(2)(ii)(B) for that billing cycle, as there would be no MAPR to calculate whether or not there was a balance during the billing cycle. For example, if a creditor charged a late fee for a late payment in accordance with its credit agreement with the covered borrower and in compliance with Regulation Z, the creditor may charge the fee, regardless of whether there is a balance in the billing cycle, because a late fee is not among the charges that are included in the calculation of the MAPR.

Furthermore, § 232.4(c)(2)(ii)(A) states that the MAPR shall be calculated following the rules set forth in 12 CFR 1026.14(c) and (d) of Regulation Z. Thus, the reference in § 232.4(c)(2)(ii)(B) to a situation in which the MAPR cannot be calculated in a billing cycle, because there is no balance, relates solely to the situation like the one described in 12 CFR 1026.14(c)(2), which is the only provision in 12 CFR 1026.14(c) and (d) that describes the inability to calculate an effective annual percentage rate when there is no balance in the billing cycle. 12 CFR 1026.14(c)(2) discusses how to compute an effective annual percentage rate when the charge imposed during the billing cycle is or includes a minimum, fixed, or other charge not due to the application of a periodic rate, other than a charge with respect to any specific transaction during the billing cycle. Under 12 CFR 1026.14(c)(2), if there is no balance to which the charge is applicable, an effective annual percentage rate cannot be determined under the section. Similarly, § 232.4(c)(2)(ii)(B) relates to when finance charge imposed during the billing cycle is or includes a minimum, fixed or other charge not due to the application of a periodic rate, other than a charge with respect to a specific transaction charge, and there is no balance to which the charge is applicable.

6. Is a minimum interest charge that a creditor may charge a covered borrower as part of a credit card account under an open-end (not home-secured) consumer credit plan and that is generally disclosed in the account-opening table under 12 CFR 1026.6(b)(2)(iii) eligible as a bona fide fee excludable from the calculation of the MAPR?

Answer: Yes. 32 CFR 232.4(d)(1) provides that for consumer credit extended in a credit card account under an open-end (not home-secured) consumer credit plan, a bona fide fee, other than a periodic rate, is not a charge required to be included in the MAPR, provided it is a bona fide fee and reasonable for that type of fee. A minimum interest charge that a creditor will charge a covered borrower if the creditor charges interest during a particular billing cycle for a credit card account under an open-end (not home-secured) consumer credit plan is generally required to be disclosed in the account-opening table under 12 CFR 1026.6(b)(2)(iii). Such a charge is not a periodic rate. Furthermore, neither of the categories of fees that are ineligible for the exclusion for bona fide fees (credit insurance premiums and fees for a credit-related ancillary product) applies to this type of charge. Consequently, a minimum interest charge that is generally disclosed in the account-opening table under 12 CFR 1026.6(b)(2)(iii) (even if it does not exceed the threshold for required disclosure in the account-opening table under 12 CFR 1026.6(b)(2)(iii)) may be a bona fide fee excludable from the calculation of the MAPR if it meets the conditions for exclusion.

7. Under 32 CFR 232.4(d)(3)(ii), may creditors rely on commercially compiled sources of information in conducting calculations necessary for the conditional reasonable bona fide credit card fee safe harbor?

Answer: Generally, yes. The July 2015 Final Rule intends to provide a firm, yet flexible, adaptable standard allowing credit card issuers to exclude bona fide and reasonable credit card fees from the calculation of the MAPR. Under the safe harbor set forth in § 232.4(d)(3)(ii), creditors are allowed to exclude a reasonable bona fide fee charged to a credit card account from the calculation of the MAPR, where that fee is less than or equal to an average amount of a fee for the same or a substantially similar product or service charged by 5 or more creditors, each of whose U.S. credit cards in force is at least $3 billion in an outstanding balance (or at least $3 billion in loans on U.S. credit card accounts initially extended by the creditor) at any time during the 3-year period preceding the time such average is computed. As the Department stated in the supplementary information to the July 2015 Final Rule, the Department believes that information on credit card fees imposed by large credit card issuers is widely available. Moreover, the Department stated in the supplementary information to the July 2015 Final Rule that the amount of outstanding credit card loans is available in both Securities and Exchange Commission filings as well as Call Reports. Nevertheless, nothing in 32 CFR part 232 prohibits a credit card issuer from relying on information sources compiled in commercially available databases or other industry sources in making safe harbor calculations. However, the safe harbor under § 232.4(d)(3)(ii) is available only if the amount of the fee is actually less than or equal to an average amount of a fee for the same or a substantially similar product or service charge by 5 or more creditors each, of whose U.S. credit cards in force is at least $3 billion in an outstanding balance (or at least $3 billion in loans on U.S. credit card accounts initially extended by the creditor) at any time during the 3-year period preceding the time such average is computed.

8. Under 32 CFR 232.4(d), is it permissible to consider benefits provided by credit card rewards programs in determining whether the amount of a fee is (a) less than or equal to an average amount of a fee for a substantially similar product or service for purposes of comparison under the safe harbor and (b) reasonable overall?

Answer: Generally, yes. Section 232.4(d)(1) provides that for a credit card account under an open-end (not home-secured) consumer credit plan, a bona fide fee, other than a periodic rate, is not a charge required to be included in the MAPR, provided it is a bona fide fee and reasonable for that type of fee. Under § 232.4(d)(3)(i), whether a fee is reasonable is determined by comparison to fees typically imposed by other creditors for the same or a substantially similar product or service. Under § 232.4(d)(3)(iii), whether a fee is reasonable depends on other factors relating to the credit card account. Section 232.4(d)(3)(iv) further clarifies that whether a participation fee is reasonable may be determined in reference to whether a credit card offers additional services or other benefits. Moreover, the supplementary information to the July 2015 Final Rule explains that “the `reasonable' condition for a bona fide fee is intended to be applied flexibly so that, in general, creditors may continue to offer a wide range of credit card products that carry reasonable costs expressly tied to specific products or services and which vary depending upon the covered borrower's own choices regarding the use of the card.”?

Under the Department's flexibly applied conditional exclusion, creditors may use any reasonable approach in identifying whether a fee is substantially similar for purposes of comparison and reasonable overall. Thus, the Department's policy, in this regard, permits a creditor to consider whether the benefits provided by a rewards program in determining whether a fee is reasonable overall. Moreover, creditors may consider rewards program benefits in determining whether the amount of a fee is less than or equal to an average amount of a fee for a substantially similar product or service for purposes of the safe harbor in § 232.4(d)(3)(ii).

9. Under 32 CFR 232.5(b), is an assignee permitted to avail itself of a covered borrower identification safe harbor if the assignee has maintained the original creditor's record of a covered borrower check?

Answer: Yes. Under § 232.5(b) a creditor may conclusively determine whether credit is offered or extended to a covered borrower by assessing the status of a credit applicant, in accordance with the methods for checking the status of consumers discussed in § 232.5(b)(2). A creditor's timely covered borrower check is legally conclusive, so long as the creditor creates and thereafter maintains a record of the consumer's covered borrower status. Under § 232.3(i)(2) a creditor, by definition, includes the creditor's assignee. Thus, the Department's policy is to extend the covered borrower check safe harbor to a creditor's assignee, provided that the assignee continues to maintain the record created by the creditor that initially extended the credit.

10. Does the historic lookback provision of 32 CFR 232.5(b)(2)(B) prevent creditors from adopting a risk management plan that includes periodically screening credit portfolios to discover changes to covered borrower status?

Answer: No. Section 232.5 explains the methods available to creditors when determining a consumer's covered borrower status prior to or at the time the parties enter into a transaction or an account is created. 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.” 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. However, as stated in § 232.7, other State or Federal laws providing greater protections to covered borrowers may apply to covered transactions under the MLA. Creditors should ensure compliance with any such laws that may apply to them and these transactions.

11. Does the particular internet address referenced in 32 CFR 232.5(b)(2) limit the availability of a safe harbor for a covered borrower check conducted through alternative methods of accessing the MLA database provided by the Department?

Answer: No. Under the safe harbor provided in § 232.5(b)(1), a creditor may conclusively determine whether credit is offered to a covered borrower by assessing the status of a consumer using information related to that consumer obtained from the database, maintained by the DMDC, for that purpose. Section 232.5(b)(2) references a uniform resource locator (URL), more commonly known as an Internet address, as a convenience to assist the public in locating the DMDC MLA database. However, that particular URL address itself does not serve as a restriction on the method through which the DMDC MLA database is accessed. For technological reasons, the Department may from time to time revise the DMDC MLA URL through providing notice on the DMDC MLA Web page. Therefore, a creditor who makes a determination regarding the status of a consumer by accessing the database maintained by the DMDC through a URL provided by the DMDC that is different from the one specifically referenced in § 232.5(b)(2) may still take advantage of the safe harbor in § 232.5(b)(1), so long as the creditor timely creates and thereafter maintains a record of the information so obtained as provided in § 232.5(b)(3).

Furthermore, the Department is currently developing a pilot project in collaboration with several financial service providers that anticipate a large volume of covered borrower checks. In this pilot project, the Department is experimenting with a direct connection that may improve access to the DMDC database for the financial services industry. This direct connection pilot project accesses the same DMDC database available through an internet query. A creditor may verify the status of a consumer by using the database maintained by the Department for that purpose, even though the creditor uses a method of accessing that database provided by the Department other than the particular URL listed in § 232.5(b)(2). Thus, a creditor who makes a determination regarding the status of a consumer under § 232.5(b)(2) by participating in the Department's direct connection pilot project (or a similar form of access should it be provided by the Department at a future date) is deemed conclusive with respect to that transaction or account involving consumer credit between the creditor and that consumer, so long as that creditor timely creates and thereafter maintains a record of the information so obtained as provided in § 232.5(b)(3).

12. How may a creditor orally provide the payment obligation disclosure required under 32 CFR 232.6(a)(3) to meet the requirements of 32 CFR 232.6(d)(2)?

Answer: Section 232.6(a)(3) requires a creditor to provide to a covered borrower, before or at the time the borrower becomes obligated on the transaction or establishes an account for the consumer credit, a clear description of the payment obligation of the covered borrower, as applicable. A payment schedule (in the case of closed-end credit) or an account-opening disclosure (in the case of open-end credit) provided pursuant to the requirement to provide Regulation Z disclosures satisfies this obligation. Therefore, a creditor may orally provide the information in a payment schedule or an account-opening disclosure to a covered borrower. However, an oral recitation of the payment schedule or the account-opening disclosure is not the only way a creditor may comply with § 232.6(a)(3). A creditor may also orally provide a clear description of the payment obligation of the covered borrower by providing a general description of how the payment obligation is calculated or a description of what the borrower's payment obligation would be based on an estimate of the amount the borrower may borrow. For example, a creditor could generally describe how minimum payments are calculated on open-end credit plans issued by the creditor and then refer the covered borrower to the written materials the borrower will receive in connection with opening the plan. Alternatively, a creditor could choose to generally describe borrowers' obligations to make a monthly, bi-monthly, or weekly payment as the case may be under the borrowers' agreements.

Neither the MLA nor the MLA regulation specifies particular content or format for the requirement of a clear, oral description of the payment obligation. Also, nothing in the MLA or the MLA regulation requires that the clear description of the payment obligation provided in writing must be the same as the oral disclosure, provided that both disclosures are clear and accurate. As explained in the supplementary information to the Department's July 2015 Final Rule, the Department's approach has been to interpret the MLA's oral disclosure requirement in a manner that provides creditors “straightforward mechanisms” that afford “latitude to develop the same (or consistent) systems to orally provide the required disclosures—regardless of the particular context …”? The requirement of a clear, oral payment obligation disclosure has sufficient breadth that creditors may choose a variety of acceptable oral disclosure compliance strategies. Thus, under the Department's approach, a generic oral description of the payment obligation may be provided, even though the disclosure is the same for borrowers with a variety of consumer credit transactions or accounts.

13. If a creditor chooses to provide the information that is required to be provided orally by providing a toll-free telephone number, consistent with 32 CFR 232.6(d)(2)(ii)(B), when must the information be available to the borrower?

Answer: Section 232.6(d)(2) requires a statement of the MAPR and a clear description of the covered borrower's payment obligation to be provided to the covered borrower orally. Creditors may satisfy this requirement by providing the information to the covered borrower in person or through a toll-free telephone number. If the creditor decides to provide the borrower with a toll-free telephone number, the toll-free telephone number must be provided on i) a form the creditor directs the consumer to use to apply for the transaction or account, or ii) the written disclosure of the information that is required under § 232.6(d)(1). Since § 232.6(d)(2) permits creditors to provide oral disclosures by providing a toll-free telephone number, such information must be available from the time the creditor provides the toll-free telephone number. The difficulty of providing this information in a timely way through a toll-free telephone system is mitigated by the Department's interpretation of mandatory oral disclosures as allowing for a nonnumeric statement of the MAPR and a generic, clear description of the payment obligation. See § 232.6(c) and Question and Answer #12 of these Interpretations. Oral disclosures provided through a toll-free telephone system need only be available under § 232.6(d)(2)(ii)(B) for a duration of time reasonably necessary to allow a covered borrower to contact the creditor for the purpose of listening to the disclosure.

14. In circumstances where Regulation Z allows a creditor to provide disclosures after the borrower has become obligated on a transaction (as in the case of purchase orders or requests for credit made by mail, telephone, or fax), does the MLA provide for similarly delayed disclosure?

Answer: Yes. 32 CFR 232.6(a) states that a creditor shall provide mandatory loan disclosures, including “any disclosure required by Regulation Z,” to a covered borrower “before or at the time the borrower becomes obligated on the transaction or establishes an account for the consumer credit. . .” Section 232.6(a)(2) further states that “any disclosure required by Regulation Z . . . shall be provided only in accordance with the requirements of Regulation Z that apply to that disclosure...” In certain instances Regulation Z allows a creditor to provide a disclosure after the borrower has become obligated on a transaction, as in the case of purchase orders or requests for credit made by mail, telephone, or fax under 12 CFR 1026.17(g). The MLA regulation's general timing requirement does not override more specific disclosure timing provisions in Regulation Z. The requirement in § 232.6(a) that any disclosure required by Regulation Z be provided only in accordance with the requirements of Regulation Z does not amount to a requirement that MLA-specific disclosures be separately provided to borrowers in advance of TILA disclosures. Thus, the disclosures required in § 232.6(a) may be provided at the time prescribed in Regulation Z.

15. Under 32 CFR 232.8, within a single credit agreement may creditors permissibly use a “savings clause” that excludes covered borrowers from prohibited notice, waiver, arbitration, or other terms that would otherwise be applicable to non-covered borrowers?

Answer: Yes. Section 232.8 makes it unlawful for any creditor to extend consumer credit in which the credit agreement imposes on a covered borrower a proscribed term or provision listed in § 232.8. However, nothing in the MLA regulation restricts the ability of creditors to impose on non-covered borrowers those provisions proscribed under § 232.8 for covered borrowers. Along these lines, the supplementary information in the July 2015 Final Rule explains that the Department “recognizes that many creditors likely would adopt disclosures and contract documents that would be designed to be provided to both consumers who are not entitled to the protections under the MLA and to covered borrowers.”? Under the MLA, a creditor may include a proscribed term under § 232.8, such as a mandatory arbitration clause, within a standard written credit agreement with a covered borrower, provided that the agreement includes a contractual “savings” clause limiting the application of the proscribed term to only non-covered borrowers, consistent with any other applicable law.

16. Does the limitation in § 232.8(e) on a creditor using a check or other method of access to a deposit, savings, or other financial account maintained by the covered borrower prohibit the borrower from repaying a credit transaction by check or electronic fund transfer?

Answer: No. As a general proposition the prohibition of a creditor's use of a check or other method of access in § 232.8(e) does not in any way imply that a creditor cannot be paid. In no case does paragraph (e) prevent covered borrowers from tendering a check or authorizing access to a deposit, savings, or other financial account to repay a creditor. Section 232.8(e) also does not prohibit a covered borrower from authorizing automatically recurring payments, provided that such recurring payments comply with other laws, such as the Electronic Fund Transfer Act and its implementing regulations, including 12 CFR 1005.10, as applicable.

In contrast, § 232.8(e) prohibits a creditor from using the borrower's account information to create a remotely created check or remotely created payment order in order to collect payments on consumer credit from a covered borrower. Similarly, a creditor may not use a post-dated check provided at or around the time credit is extended that deprives the borrower of control over payment decisions, as is common in certain payday lending transactions.

Section 232.8(e)(1) and (2) further clarify that covered borrowers may tender checks and authorize electronic fund transfers by specifying permissible actions creditors may take to secure repayment by covered borrowers. The exceptions address cases where a creditor requires a covered borrower to provide repayment in a certain way. Specifically, under § 232.8(e)(1), a creditor may require an electronic fund transfer to repay a consumer credit transaction, unless otherwise prohibited by law. The Department notes that 12 CFR 1005.10(e)(1) prohibits anyone from conditioning an extension of credit to a consumer on the consumer's repayment by preauthorized electronic fund transfers (except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer's account). However, a preauthorized electronic fund transfer is defined under 12 CFR 1005.2(k) as an electronic fund transfer authorized in advance to recur at substantially regular intervals.

In addition, § 232.8(e)(2) clarifies that a creditor is permitted to require direct deposit of the consumer's salary as a condition of eligibility for consumer credit, unless otherwise prohibited by law. While § 232.8(g) prohibits a creditor from requiring as a condition for the extension of consumer credit that the covered borrower establish an allotment to repay an obligation, the regulation does not apply this restriction to a “military welfare society” or a “service relief society” as defined in 37 U.S.C. 1007(h)(4).

17. [Updated 12/14/17] Does the limitation in § 232.8(e) on a creditor using a check or other method of access to a deposit, savings, or other financial account maintained by the covered borrower prohibit the borrower from granting a security interest to a creditor in the covered borrower's checking, savings or other financial account?

Answer: No. The prohibition in § 232.8(e) 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 other applicable law and the creditor complies with all other provisions of the MLA regulation, including the limitation on the MAPR to 36 percent. As discussed in Question and Answer #16 of these Interpretations, § 232.8(e) prohibits a creditor from using the borrower's account information to create a remotely created check or remotely created payment order in order to collect payments on consumer credit from a covered borrower or using a post-dated check provided at or around the time credit is extended.

Section 232.8(e)(3) further clarifies that covered borrowers may convey security interests in checking, savings, or other financial accounts by describing a permissible security interest granted by covered borrowers. Borrowers may convey security interests for all types of consumer credit covered by the MLA regulation.

Creditors should also note, however, that 32 CFR 232.7(a) provides that the MLA does not preempt any State or Federal law, rule or regulation to the extent that such law, rule or regulation provides greater protection to covered borrowers than the protections provided by the MLA. For example, although the MLA regulation does not prohibit borrowers from conveying security interests in all types of consumer credit covered by the regulation, including credit card accounts, such accounts may also be subject to other laws, rules and regulations governing offsets and security interests. See, e.g., 12 CFR 1026.12(d).

18. [Updated 12/14/17] Does the limitation in § 232.8(e) on a creditor using a check or other method of access to a deposit, savings, or other financial account maintained by the covered borrower prohibit a creditor from exercising a statutory right, or a right arising out of a security interest a borrower grants to a creditor, to take a security interest in funds deposited within a covered borrower's account at any time?

Answer: No. In addition to the security interests granted by borrowers to creditors, as discussed in Question and Answer #17 of these Interpretations, above, under certain circumstances Federal or State statutes may grant creditors statutory liens on funds deposited within covered borrowers' asset accounts. Section 232.8(e) does not prohibit a creditor from exercising rights to take a security interest in funds deposited into a covered borrower's account at any time, including enforcing statutory liens, provided that it is not otherwise prohibited by other applicable law and the creditor complies with all other provisions of the MLA regulation, including the limitation on the MAPR to 36 percent. For example, under 12 U.S.C. 1757(11) Federal credit unions may “enforce a lien upon the shares and dividends of any member, to the extent of any loan made to him and any dues or charges payable by him.”

As discussed in Question and Answer #16 of these Interpretations, § 232.8(e) serves to prohibit a creditor from using the borrower's account information to create a remotely created check or remotely created payment order in order to collect payments on consumer credit from a covered borrower or using a postdated check provided at or around the time credit is extended. Section 232.8(e)(3) describes a permissible activity under § 232.8(e). However, the fact that § 232.8(e)(3) specifies a particular time when a creditor may take a security interest in funds deposited in an account does not change the general effect of the prohibition in § 232.8(e). Therefore, § 232.8(e) does not impede a creditor from—for example—exercising a statutory right to take a security interest in funds deposited in an account at any time, provided that the security interest is not otherwise prohibited by other applicable law and the creditor complies with all other provisions of the MLA regulation, including the limitation on the MAPR to 36 percent.

Creditors may exercise the right to take a security interest in funds deposited into a covered borrower's account in connection with all types of consumer credit covered by the MLA regulation, including credit card accounts, provided the creditor's actions are not prohibited by other State or Federal law, rule or regulation that provides greater protection to covered borrowers than the protections provided in the MLA. For example, although the MLA regulation does not prohibit borrowers from conveying security interests in all types of consumer credit covered by the regulation, including credit card accounts, such accounts may also be subject to other laws, rules and regulations governing offsets and security interests. See, e.g., 12 CFR 1026.12(d).

19. Under 32 CFR 232.3(f)(2)(ii) and 232.8(f) what methods of transportation are included within the definition of a “vehicle”?

Answer: For purposes of the MLA, the term “vehicle” means any self-propelled vehicle primarily used for personal, family, or household purposes for on-road transportation. The term does not include motor homes, recreational vehicles (RVs), golf carts, or motor scooters.

20. [Added 12/14/17] To qualify for the optional safe harbor under 32 CFR 232.5(b)(3), must the creditor determine the consumer's covered borrower status simultaneously with the consumer's submission of an application for consumer credit or exactly 30 days prior?

Answer: No. Section 232.5(b)(3)(i) and (ii) permit the creditor to qualify for the safe harbor when it makes a timely determination regarding the status of a consumer at the time the consumer either initiates the transaction or submits an application to establish an account, or anytime during a 30-day period of time prior to such action. Therefore, a creditor qualifies for the safe harbor under § 232.5(b) when the qualified covered borrower check that the creditor relies on is conducted at the time a consumer initiates a credit transaction or applies to establish an account, or up to 30 days prior to the action taken by the consumer. Similarly, the timing provisions in § 232.5(b)(3)(i) and (ii) permit a creditor to qualify for the safe harbor when it conducts a qualified covered borrower check simultaneously with the initiation of the transaction or submission of an application by the consumer or during the course of the creditor's processing of that application for consumer credit.

21. [Added 2/28/2020] Does a creditor qualify for the safe harbor set forth in 32 CFR 232.5(b)(2)(i)(A) if the creditor uses an Individual Taxpayer Identification Number (ITIN) to search the Department's database to conclusively determine whether credit is offered or extended to a covered borrower, and thus may be subject to 10 U.S.C. 987 and the requirements of 32 CFR 232.5(b)?

Answer: Yes. The Department recognizes that while all members of the Armed Forces will have a Social Security Number (SSN), a limited population of dependents, who meet the definition of a covered borrower in 32 CFR 232.3(g), may not qualify for a SSN due to their citizenship status. An ITIN is a tax processing number issued by the Federal government in lieu of a SSN. ITINs are only available for certain nonresident and resident aliens, their spouses, and dependents who cannot obtain a SSN and can be used in searches of the Department's database. Since all covered borrowers will have a SSN or ITIN, the Defense Manpower Data Center (DMDC) MLA database contains ITINs for covered borrowers who are not eligible to obtain an SSN. Therefore, for purposes of 32 CFR 232.5(b)(2)(i)(A), an ITIN is a “Social Security number.”

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