Georgia Credit Union Affiliates

Georgia Credit Union Affiliates

Compliance Council Meeting

September 13, 2017

MILITARY LENDING ACT

Presentation by:

Michael McLain

Senior Federal Compliance Counsel

Credit Union National Association

Disclaimer

Information provided in this presentation, including all materials, should not be construed as legal services, legal advice, or in any way establishing an attorney-client relationship. Credit unions should contact their own legal counsel for advice. Information may have changed since this presentation was prepared. This information is intended to only be a summary and is not all inclusive.

Copyright © 2016 by Credit Union National Association. All rights reserved. These materials may not be reproduced in whole or in part, in any form whatsoever, without the express written permission of Credit Union National Association.

When are Credit Card Accounts Subject to the MLA ?

1: Is a Credit Card Account opened prior to October 3, 2017 subject to the MLA?

2: What about a Credit Card account opened after October 3, 2017?

3: What if the account is opened after October 3, 2017 by a

servicemember

not on active duty at the time the account is established?

4: In the above example, what if the

servicemember

goes on active duty on November 3, 2017, one month after the account was established?

5: What about a card account opened on October 3, 2017 by a

servicemember

on active duty at that time?

6: Does the situation in the fifth bullet change if the

servicemember

is no longer on active duty as of December 3, 2017

Proper Calculation of the MAPR for Credit Card Accounts

Section 232.4(b) of the MLA: For open-end loans including credit card accounts, the MAPR must be calculated during each billing cycle.

Credit unions may waive fees or finance charges to Reduce the MAPR to 36% or below.

Content of the MAPR is different for credit card accounts than for other open-end loans.

Exclusion of Reasonable, Bona Fide Fees from the MAPR for Credit Card accounts

MLA Section 232.4(d) provides a Safe Harbor permitting creditors to exclude Reasonable Bona Fide credit card fees from the MAPR,

Fee must be less than or equal to average amount for the same or similar product charged by five card issuers, each with at least $3 billion in outstanding card balances at any time during the three year period preceding the time the average is determined.

To what types of fees does the exclusion apply?

Retain documentation of the safe harbor calculations.

How often should the Safe harbor calculations be performed?

Standards Relating to Bona Fide Fees

Like Kind Fees—To determine whether a bona fide fee is reasonable, the fee must be compared to fees for the same or similar service and the same or similar product.

A bona fide fee that is higher than an average amount may be reasonable depending on other factors related to the card.

A fee may be higher than the average if additional services or other benefits are offered on the credit card account.

A bona fide fee charged by a credit union is not unreasonable solely because other card issuers do not charge a fee for the same or a substantially similar product or service.

Establishing Reasonableness for a Participation Fee

If the fee is less than or equal to the average amount charged by five large card issuers reviewed;

If the amount corresponds to the credit limit, to the services offered under the card agreement, or to other factors relating to the credit card account.

Effect of Charges for Non-bona fide fees

Imposing any fee (other than a periodic rate or fee such as a charge for credit insurance that is required to be included in the MAPR) that

is not a bona fide fee or that is considered unreasonable

, requires the credit union to include the total amount of non bona fide

fees,unreasonable

fees, along with all bona fide fees, that ordinarily would have been excluded, and other finance charges in the calculation of the MAPR.

Other Issues Affecting Credit Card Accounts

Types of fees included in the MAPR for open-end loans:

Fees that are considered finance charges under Reg. Z,

Unless excluded as bona-fide fees on a credit card account,

“Other charges” under Reg. Z are not included in the MAPR unless required by the MLA—Ex.—Credit Insurance premiums

Treatment of Zero-balance Accounts

General Rule: For open-end credit, If the MAPR can’t be calculated in a billing cycle because there is a zero balance, a credit union may not impose any fee or charge during that billing cycle except for a participation fee that doesn’t exceed $100 per year (regardless of the billing cycle in which the fee is imposed) and does not apply to a bona fide participation fee;

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 above limitations since there would be no MAPR to calculate;

DoD’s official Interpretations permit a charge that is not a finance charge under Reg. Z to be imposed during a billing cycle with a zero balance.

Is a Minimum Interest charge on a Credit Card Account Always Included in the MAPR?

No, not if it can be excluded from the MAPR as a Reasonable Bona-Fide fee.

Otherwise it would be included in the MAPR.

May a Credit Card Agreement Contain a Savings Clause that Excludes Covered Borrowers from Terms that are Prohibited by the MLA?

Yes, rather than design two credit card agreements—one for non-covered borrowers and one for covered borrowers, The DoD permits the use of a Savings Clause so a credit union may design one card agreement for use by non-covered borrowers and covered borrowers;

Provided the agreement contains a “Savings clause” limiting any terms prohibited by the MLA to only non-covered borrowers.

What about Share Secured Credit Card Accounts?

The MLA rule currently only permits a security interest in a deposit account established in connection with the loan and only in funds deposited after the extension of credit.

Traditional share secured credit card accounts that obtain a security interest in funds deposited both before as well as after the loan is established don’t comply with the MLA requirements.