Written by Brandy Bruyere, Director of Regulatory Compliance
For those who have spent the past several months on the Department of Defense (DoD) Military Lending Act rules, today is the compliance deadline (except for credit cards, that’s next year). Just in time for this deadline, on Friday the CFPB updated its Supervision and Examination Manual to account for the MLA requirements. Interestingly, the document refers to this section as the “Interagency Examination Procedures,” so it seems possible that the CFPB published before the FFIEC but we will see what other regulators release in the days (or weeks?) to come.
In the meantime, the CFPB Supervision and Examination Manual simply restates the MLA requirements, incorporating items from the August 26 interpretative rule, without elaborating on the various ambiguities in the rule. However, some items from the Examination Procedures section may be of interest. For example, for evaluating a compliance management system for MLA, the CFPB is advising examiners to review training programs and policies and procedures; here is an excerpt from p. 20 of the document:
- Determine the extent and adequacy of the training received by individuals whose responsibilities relate to compliance with the MLA. Review any training materials pertaining to the MLA and determine whether the training is comprehensive and covers the various aspects of the provisions that apply to the creditor’s offerings and operations.
- Determine if the institution has policies or procedures in place to:
- Provide account disclosure information to covered borrowers in accordance with 32 CFR 232.6;
- Correctly determine which fees it charges are required to be included in the calculation of the Military Annual Percentage Rate (MAPR);
- Correctly calculate and limit the MAPR (including waiving amounts necessary in order to comply with the limit at the outset of a transaction and at the end of a billing cycle on open-end credit, as applicable) as defined in 32 CFR 232.3(p) and in accordance with 32 CFR 232.4(c); and
- Properly create and maintain records of covered borrower checks.
Another section of the manual update addresses the various limitations set forth in section 232.8 of the MLA:
- Determine whether the creditor abides by the prohibitions against requiring covered borrowers to:
- Waive their rights to legal recourse under any otherwise applicable law;
- Submit to arbitration or other onerous legal notice provisions in the case of a dispute; or
- Provide unreasonable notice as a condition for legal action.
- Confirm that the creditor does not:
- Require that a covered borrower repay the obligation by military allotment (note that for purposes of this provision of the regulation, the term creditor does not include military welfare societies or service relief societies);
- Prohibit a covered borrower from prepaying the consumer credit; or
- Charge a covered borrower a penalty fee for prepaying all or part of the consumer credit.
Of course, it is not clear how examiners will determine what is an “onerous legal notice provision” or a “unreasonably notice” requirement when the DoD did not provide a definition, any guidelines or any factors to consider for making this determination so this seems more of a legal determination at this point. NAFCU’s MLA Compliance Guide (log in required) has a brief discussion on p. 31 of this issue that our members may find helpful.
Overall though, while this supervisory guidance does not answer any of the lingering questions stemming from the MLA, it might be a helpful preview of what to expect from examiners. Also, there is a checklist at the end that may also be useful for a high-level review of a credit union’s MLA compliance program.