Posts tagged ‘MLA’

Did The CFPB Just Do a Power Grab?

Today the CFPB will be publishing in the Federal Register an interpretive ruling explaining why it has the authority to examine the institutions it directly supervises for compliance with the Military Lending Act. Since most of you work for credit unions that have less than $10 billion in assets this document won’t have an impact on your operations, but here’s why you should care:

The Military Lending Act was passed in 2006 as a narrowly focused piece of legislation to protect our service men and women from some of the most egregious predatory lending in existence at the time. After all, there should be a special place in hell for people who specialize in ripping off the underpaid men and women who protect us. Unfortunately, the MLA has been transformed via the rulemaking process from a reasonable piece of legislation into a regulatory monstrosity replete with its own Military APR and its own interest rate cap. But that is water under the bridge.

Another unique aspect of the MLA is that it is not included in the expansive list of federal consumer financial protection laws which congress explicitly listed when it passed the Dodd-Frank Act. Nevertheless, this did not become an issue until 2018 when the CFPB announced that it would no longer conduct MLA examinations as part of its oversight over the institutions it directly supervised because it lacked the legislative authority to do so.

Let’s be honest, to his critics, Mick Mulvaney’s oversight of the CFPB is remembered about as fondly as Voldemort’s rule over Hogwarts.  In our polarized political world the idea that an agency would unilaterally limit its own power was of course met with howls of outrage even though Congress could have and should have easily amended existing law to give the CFPB examination authority. Besides, the CFPB still had the authority to bring enforcement actions against lenders who violated the MLA. 

The language is pretty clear, or so I thought.  §125 provides in part (1) IN GENERAL —The Bureau shall have exclusive authority to require reports and conduct examinations on a periodic basis of persons described in subsection (a) for purposes of— (A) assessing compliance with the requirements of Federal consumer financial laws; (B) obtaining information about the activities subject to such laws and the associated compliance systems or procedures of such persons…

Congress took the time to list precisely what laws were to be considered Federal consumer financial laws and the MLA wasn’t put on the list.

It ends up that we didn’t need to change a law, we simply needed to change administrations. In its interpretive ruling the CFPB explains how, notwithstanding the fact that Congress drafted a definitive list of statutes over which the CFPB would have examination authority, the MLA is also within the CFPB’s scope of authority.

This is the latest example of the CFPB stretching its already enormous powers. The problem is that we live in a nation of laws, not regulations. The same people who complement the CFPB today will be the same people criticizing the CFPB for ignoring the role of Congress next time a Republican administration takes over the CFPB.  It’s time for everyone to remember that in a republic, the ends don’t justify the means.  We simply don’t get to ignore the laws we don’t like or the processes we have in place to change them. 

June 23, 2021 at 9:24 am Leave a comment

Why I Hope This Blog Doesn’t Matter To You

I pride myself on getting up bright and early to provide you with informative rants on the news of the day that will impact your credit union, but today is different. I’m hoping that the information I give you is obsolete and unnecessary. Here it goes.

On October 3rd regulations extending the “Military Lending Act” (MLA) officially to credit card transactions took effect. This means that when providing credit cards to a member of the armed services or dependent, you may not charge a Military Annual Percentage Rate (MAPR) greater than 36%. In addition, there are unique disclosures that must be provided.

The most important thing to keep in mind is that the MAPR is calculated differently than the traditional APR. For example, in calculating the APR you would include any premium or fee for credit insurance or debt suspension agreement.

The good news is that the regulation permits lenders to exclude from the MAPR calculations. Bona fide and reasonable fees can be excluded from the MAPR calculation. A fee meets this criteria if it is similar to fees imposed by other creditors for “the same or substantially similar product or service.” If you don’t want to risk being challenged over whether a fee is in fact bona fide, a compliance “safe harbor” (see yesterday’s blog) is provided. A bona fide fee is reasonable “if the amount of the 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.” This notice from CUNA Mutual provides guidance on how you can make that calculation.

When the MLA was first implemented, you could rely on information provided by your member to determine if they were entitled to the MAPR’s protection. But since October of last year, you only receive safe harbor protection for complying with the law’s requirements if you run a member’s identification information in the DMDC database. In addition, the major credit reporting agencies can also flag MLA eligibility.

Remember, this regulation simply expands on requirements that were already imposed on lenders as a result of the Department of Defense’s decision to expand the coverage of the Military Lending Act from just high cost pay-day loans, vehicle title loans and refund anticipation loans to virtually all types of consumer transactions.

When the DOD decided to expand the coverage of the MLA, about the only regulator who thought that the DOD’s updated regulatory framework made sense was the CFPB. Need I say more? Both the banking and credit union trade groups continue to express concern that the regulations, no matter how well-intentioned, needs to be better explained. In addition, it seems to me that, by basing bona fide fees on the practices of the largest credit card providers the regulations have the unintended consequence of making it more difficult for smaller lenders such as credit unions to cost effectively provide credit cards to military personnel and their dependents.

But the time for complaining is over. Besides, that’s my job. Unfortunately, I get the sense that there are some credit unions that aren’t quite up to speed when it comes to complying with this regulation. Be sure to take a nap when you get home today so you are nice and fresh for tonight’s Yankee game.

October 5, 2017 at 9:27 am Leave a comment

Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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