More and more is being learned about the requirements of the Military Lending Act here at CU*Answers, and questions continue to be asked relative to what changes we anticipate making in CU*BASE. This update will investigate the three main requirements and then further describe where we are at relative to the core platform. For previously shared information regarding MLA, visit https://auditlinksuite.com/.
The first requirement includes the credit union’s responsibility to identify covered borrowers prior to the approval of credit. As stated previously, it does not appear that the DOD will be allowing many financial institutions to access the direct connect portal. To date it does not appear as though any changes to this are on the horizon. We continue to track the credit reporting agencies’ progress on listing the active duty status on credit reports. To date Equifax is the only CRA that has stated they are currently in the testing phase of accessing the MLA database and displaying it on their reports. We have begun discussions with ZOOT and asked that we be kept in the loop as the testing phase continues so as to, if necessary, make any changes on our end. As a reminder, identifying covered borrowers must only be completed at the time of application or refinance. Existing members in an active duty status do not need to be checked.
The calculation of MAPR continues to be the hot button and there have been numerous compliance events where this has been the headlining discussion. The kicker revolves around the fact that credit insurance and other fees are defined as a finance charge by the DOD and included in the calculation. If credit insurance is chosen, the credit union must then calculate the MAPR including the cost and verify that result does not exceed 36%. In the event the percentage does exceed the limit, the interest rate on the loan must be adjusted accordingly. This is a requirement for both open and closed end loans.
However, the calculation does warrant some clarity for lending and compliance professionals. An important piece of the regulation that must be taken into consideration with the MAPR calculation is that the requirement does not apply to:
- Any credit transaction secured by an interest in a dwelling regardless of it being open or closed end
- Any credit transaction that is expressly intended to finance the purchase of a vehicle when the vehicle is used as collateral
- Any credit transaction that is expressly intended to finance the purchase of personal property when the credit is secured by that property
Even today subsequent interpretations are being discussed relative to the definitions which appear to be a moving target.
This does beg the question of what types of loans are covered. Basically it would be the unsecured and loans in which a security interest is taken in personal property where the member is not financing the purchase of the property. This is important to understand in that this vastly limits the population of potential loans that would ever be made during a given year; in some credit unions it may never happen at all.
We continue to research the calculation of the MAPR. To date we have received and evaluated the MAPR calculation for closed end loans but have not received any information on what the calculation looks like for open end loans or its application to the monthly billing cycle. An important reminder for open end unsecured credit is that this calculation must be completed every billing cycle and tested against the 36% tolerance. We will continue to monitor any updates relative to the calculations but based upon the types of loans this applies to and the chance of it even coming into play we have decided to not make any programming changes relative to MAPR at this time.
The final requirement revolves around required disclosures to covered borrowers. Credit unions have been working directly with forms providers and the effort to complete these forms includes your provider as well as the Lender*VP Forms department. These forms have been coming steadily all year and we are working on completing them as they are received.
What should credit unions expect on October 1st relative to system functionality? At this point we believe Equifax will be ready to display the active duty status. Credit unions using the other two CRAs will need to drop an icon on loan officers’ desktops for access to the MLA database. In the event credit unions offer unsecured loans or takes a security interest in personal property where the loan is not expressly made for the purchase of that property loan officers should be hesitant on adding credit life and/or charging other fees that would qualify under the MAPR calculation.