Written by Brandy Bruyere, VP of Regulatory Compliance
Many credit unions use prescreened offers of credit and similar promotions to market products, especially credit cards. With the upcoming Military Lending Act compliance deadline for credit card products, credit unions have asked how the MLA impacts these kinds of offers, particularly for obtaining a safe harbor for covered borrower status. The MLA addresses the issue, providing a longer timeframe for "firm offers of credit" such as those provided as part of prescreening programs. Specifically, 32 CFR 232.5(b)(3)(iii) indicates that a covered borrower check performed as part of a prescreened offer of credit would be within the safe harbor if the “consumer responds to that offer not later than 60 days after the time that the creditor had provided that offer to the consumer”. Note that this 60 day timeframe is from when the offer is provided to the member rather than when the credit union performed the “covered borrower check," here's the relevant provision:
(3) Determination and recordkeeping; one-time determination permitted. A creditor who makes a determination regarding the status of a consumer by using one or both of the methods set forth in paragraph (b)(2) of this section shall be deemed to be 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. A creditor may make the determination described in this paragraph (b), and keep the record of that information obtained at that time, solely at the time—
[…]
(iii) The creditor develops or processes, with respect to a consumer, a firm offer of credit that (among the criteria used by the creditor for the offer) includes the status of the consumer as a covered borrower, so long as the consumer responds to that offer not later than 60 days after the time that the creditor had provided that offer to the consumer. If the consumer responds to the creditor's offer later than 60 days after the time that the creditor had provided that offer to the consumer, then the creditor may not rely upon its initial determination in developing or processing that offer, and, instead, may act on the consumer's response as if the consumer is initiating the transaction or applying to establish the account (as described in paragraph (b)(3)(i) or (ii) of this section). (Emphasis added.)
The preamble to the final rule contains a further discussion of the prescreened timing:
The Department has designed § 232.5(b)(3) in order to enable a creditor to conduct only one covered-borrower check within the permitted safe harbor at an early stage of the transaction or the relationship with the consumer, including at the time that the creditor develops a firm offer of credit to be provided to the consumer. However, in the scenario which describes what is commonly referred to as a “prescreened” offer of credit (set forth in § 232.5(b)(3)(iii)), the Department has placed a limitation on the amount of time that may lapse between the creditor's delivery of the prescreened offer and the creditor's reliance on its covered-borrower check that formed part of the basis of the offer. The Department believes that there will be many cases when a consumer who is not a covered borrower at the time that a creditor delivers its prescreened offer (which offer is predicated, in part, on that criterion) later responds to that offer, including after becoming a covered borrower…Accordingly, § 232.5(b)(3)(iii) provides that creditor may rely on its initial covered-borrower check so long as the consumer responds to that offer not later than 60 days after the date that the creditor had provided that offer to the consumer. If the consumer responds to the creditor's offer later than 60 days after the date that the creditor had provided that offer to the consumer, then the creditor may not rely upon its initial determination in developing that offer; instead, the creditor may (but still is not required to) act on the consumer's response as if the consumer is initiating the transaction or applying to establish the account... (Emphasis added.)
http://www.federalregister.gov/a/2015-17480/p-428
But what does it mean to "provide" the offer to the member? Is it the day the credit union places the offer in the mail? Or the day the member receives the offer? The MLA is not clear on this point, so some credit unions opt to take a conservative approach and calculate the 60 day window from when the offer is mailed.
Credit unions have also asked about preapproval or prequalification promotions. Note that the carve out is specifically for "firm offers of credit" – and the MLA does not define this term. Of course, "firm offer of credit" is a defined term under the Fair Credit Reporting Act, but this is not cross-applied by the MLA. However, the MLA preamble does reference "prescreened" offers, so the FCRA meaning may at least help when determining the scope of the MLA safe harbor in these cases. Also, the way the provision is written hints at the FCRA prescreen rules, describing offers that are "developed" using certain "criteria." Credit unions will need to determine which promotions are "firm offers of credit" where the covered borrower check would provide a safe harbor for up to 60 days after providing the offer.
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Caucus Kickoff. NAFCU's Congressional Caucus starts today. Hundreds of credit union representatives will attend meetings with members of Congress and their staff to advocate on key issues, including regulatory relief. NAFCU also continues to advocate on important issues like the MLA in our constant efforts to create a better environment for credit unions. You can also participate by joining our Thunderclap campaign now to make "protect credit unions" a message that thunders across social media on September 12. By calling on Congress to help protect credit unions, you're ultimately calling on Congress to help America. For information on how your credit union can participate in these kinds of advocacy efforts, check out our Grassroots Action Center.
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