Lending to Servicemembers Flashcards
Which types of loans are covered under the MLA?
Credit offered or extended to a covered borrowers primarily for personal, family, or household purposes, and that is (i) subject to a finance charge or (ii) payable by a written agreement in more than 4 installments
Covered Borrower + Consumer Credit = MLA Covered Loan
Which charges and fees are included in the MAPR? How is the MAPR disclosed?
MAPR includes:
› Any credit INSURANCE PREMIUM or fee, including charges for single premium credit insurance
› Any fee for a DEBT CANCELLATION contract or any fee for a debt SUSPENSION agreement
› Any fee for a “CREDIT-RELATED ANCILLARY PRODUCT” sold in connection with the loan
› Finance charges
› Application fees
› Certain participation fees
Allow credit unions to delivery the oral disclosures in person, or with a toll‐free phone number provided on the loan application or with the written MLA disclosures
MLA disclosure requirements
› MAPR disclosure
› Any disclosure required by Regulation Z
› A “clear description” of the member’s payment obligation
- payment schedule for closed-end credit
- account opening disclosures for open-end credit
MLA Written Disclosures
Must include three things:
1. MAPR disclosure (rule contains model language)
2. A “clear description of the payment obligation”
− Closed‐end credit, a “payment schedule” as required by Reg Z
− Open‐end credit, an “account opening disclosure” as required by Reg Z
3. Provide all disclosures required by Regulation Z
MLA Oral Disclosures
Must provide two of the three written disclosures:
1. MAPR disclosure (rule contains model language)
2. A “clear description of the payment obligation”
− Closed‐end credit, a “payment schedule” as required by Reg Z
− Open‐end credit, an “account opening disclosure” as required by Reg Z
What is a covered borrower under the MLA?
Active duty members of the armed forces and certain dependents:
– the servicemember’s spouse
– children under 21 (and some children under 23 if students)
– children incapable of self‐support
– Parents/in‐laws if they reside with the servicemember and rely on them for at least half of their support
Is there a difference between who can be a covered borrower under the MLA and which servicemembers receive protection under the SCRA?
The SCRA protects servicemembers and their dependents (indirectly) on existing debts when the servicemember becomes active duty.
MLA protects servicemembers, their spouses and/or covered dependents at point of origination if they are on active duty at that time.
EXAMPLE: If a service member opens an account with a financial institution and then becomes active military, SCRA protections will apply. On the other hand, if the servicemember is of active duty status when the servicemember or dependent is extended credit, then MLA protections will apply.
How can a credit union determine someone’s MLA covered borrower status in a legally conclusive way to benefit from the rule’s safe harbor?
- The MLA Database, maintained by DoD, or
- Information regarding a member’s status that is obtained from a consumer report obtained from a nationwide consumer reporting agency (e.g., Experian).
What is the SCRA’s interest rate cap? When does the credit union have to apply the cap? Can the credit union collect this foregone interest at a later time? Are there potential differences in treatment between open-end and closed-end credit?
6% interest rate cap
- SCRA limits the amount of interest that can be charged on financial obligations that were incurred prior to military service
- All interest above the cap must be forfeited by the credit union and cannot be added back after a member leaves military service
- For most loans, the 6% cap only extends for the period of the member’s military service
- Mortgages receive special protection, where the interest cap also extends for one year after the end of military service
- An existing credit card balance would receive the 6% cap once a member entered active duty
- Future purchases on the credit card would not be covered because the transactions would occur after military service begins
How does the SCRA interest rate cap apply for credit card accounts?
- An existing credit card balance would receive the 6% cap once a member entered active duty
- Future purchases on the credit card would not be covered because the transactions would occur after military service begins
What are the SCRA’s limitations on repossessing vehicles and mortgage foreclosures?
- SCRA prohibits against repossessing an automobile without a court order
- The credit union cannot foreclose on a mortgage entered into by a servicemember prior to military service without a court order
This protection extends throughout the servicemember’s military service and for an additional one year after the end of military service
