MLA

Question 1

MLA vs. the Talent Amendment?

Answer 1

Talent Amendment - Consumer credit transactions occurring before 10/3/2016.

MLA - Consumer Credit transactions on or after 10/3/2016.

Question 2

Who does MLA protect?

Answer 2

Active duty members of military, spouses and dependents.

Question 3

What is the primary purpose of MLA?

Answer 3

For covered transactions, limit amount creditor can charge on a loan to the Military Annual Percentage Rate (MAPR) of 36%

Question 4

What is included under the MAPR?

Answer 4

Interest, fees, charges imposed for credit and credit ancillary products.

Includes charges not included in the finance charge or APR.

Question 5

How is the MAPR calculated?

Answer 5

Same as the APR generally.

including fees considered finance charges , but also includes fees that normally are left out of an APR calculation but are more directly related to the cost of credit.

ex: application fees, participation fees

Question 6

What additional protections are afforded under MLA beyond the MAPR?

Answer 6

• Safe harbor from liability for certain procedures that creditors may use to identify covered borrowers.
• Additional written and oral disclosures
• Prohibits certain loan terms (Prepayment penalties, mandatory arbitration clauses, unreasonable notice requirements).
• Restricts loan rollovers, renewals, and refinancings by some types of creditors.

Question 7

What are covered credit transactions under MLA?

Answer 7

• Consumer credit as defined by reg Z
• Credit cards
• Deposit advance products
• ODLOC
• Certain installment loans (not auto loans)

Question 8

What is consumer credit?

Answer 8

Credit offered or extended to a covered borrower for personal, family, or household purposes and:

• is subject to a finance charge
• Payable by written agreement in more than four installments.

Question 9

What types of credit are excluded by MLA?

Answer 9

• Residential mortgages (includes home equity and construction)
• Secured Motor vehicle credit (RVs, golf carts, scooters are exceptions)
• Secured personal property credit

Question 10

Who is a covered dependent under MLA?

Answer 10

Spouse
Children under 21 or 23 if enrolled full time in college
Children of any age incapable of self support

Question 11

What is not considered a creditor under MLA?

Answer 11

Person chartered as a bank, savings association, or credit union

Military welfare society

Service relief society

Question 12

Under what circumstances would a application fee not be included in the MAPR calculation?

Answer 12

If the fee is for a short term, small amount loan

Question 13

What is considered a short term small amount loan? (3)

Answer 13

Closed end loan:

• that limits the rate of interest to 36% under a law other than MLA
• Has a maturity term limit that shall not exceed 9 months
• has a fixed application fee limit that may be charged

Question 14

What Charges must be included in the calculation of the MAPR for both closed-end and open-end credit?

Answer 14

• Periodic rate
• Credit insurance premium or fee, debt cancellation/ suspension fee
• Credit Ancillary product fees
• Finance Charges
• Application fees
• Fees imposed for any participation in any plan for consumer credit

Question 15

What exception is there to including an application fee in the MAPR?

Answer 15

Application fees do not need to be included if they are charged by a bank when making a short-term, small amount loan. Provided the fee is not charged more than once in a 12 month period.

If the bank charges more than one application fee, the first would be excluded but all subsequent fees would be included in the MAPR.

Question 16

How is MAPR calculated for Closed End credit?

Answer 16

Same as APR under reg Z with addition of required fees under MLA.

Question 17

How is MAPR calculated for Open End credit?

Answer 17

Same as rules for calculating APR for a billing cycle in reg Z. With addition of required fees under MLA.

Question 18

How is MAPR calculated for Open End Credit when there is no Balance during Billing cycle?

Answer 18

Cannot be calculated and as a result the creditor cannot impose any charge or fee during the billing cycle except for a credit participation fee that cannot exceed $100 annually.

Participation fees for credit card accounts are excluded from this yearly limitation.

Question 19

Can a creditor charge a fee in the following example?

A creditor charges a late fee in accordance with the credit agreement and there is no balance during the billing cycle.

Answer 19

Yes, the creditor may charge the fee regardless of the balance, because a late fee is not among the charges included in the MAPR.

Creditors may impose fees or charges that are excluded from the calculation of the MAPR even if there is no balance.

Question 20

Open-end credit card accounts generally exclude fees from the MAPR when they are what?

Answer 20

Bona fide and reasonable.

ex: minimum interest charge that is generally disclosed in an account opening table.

Question 21

Which fees on credit card account are excluded from the Bona Fide fee exception and should be included in the MAPR?

Answer 21

• credit insurance premium or fee

- fee for credit ancillary product

Question 22

How do you assess if a bona fide fee is reasonable?

Answer 22

The fee must be compared to fees typically imposed by other creditors for the same or similar product.

ex: When assessing a bona fide cash advance
fee, that fee must be compared to fees charged by other creditors for transactions in which consumers receive
extensions of credit in the form of cash or its equivalent. When assessing a foreign transaction fee, that fee may not be compared to a cash advance fee because
the foreign transaction fee involves the service of
exchanging the consumer’s currency for the local currency demanded by a merchant for a good or service, and does not involve the provision
of cash to the consumer.

Question 23

How to determine if a participation fee is reasonable on a credit card?

Answer 23

Consider benefits provided by the credit card rewards to determine if the fee is reasonable overall.

If the amount of the fee reasonably corresponds
to the credit limit in effect or credit made available when the fee is imposed, to the services offered under the credit card account, or to other factors relating to the credit card account.

ex: Even if other creditors typically charge $100.00 annually for participation in credit card accounts, a $400.00 fee nevertheless may be reasonable if (relative to other accounts carrying participation fees) the credit made available to the covered borrower is significantly higher or additional services or other benefits are offered
under that account.

Question 24

What is the bona fide fee safe harbor for credit cards?

Answer 24

Fees are 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 five 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 three-year period preceding the time such average is computed.

Question 25

In the following example which fees would be included in the MAPR?

Credit card account with a fee for debt cancellation product, a finance charge, and a reasonable bona fide foreign transaction fee.

Answer 25

• Debt Cancellation

- Finance Charge

Question 26

In the following example which fees would be included in the MAPR?

Credit card account with fee for debt cancellation product, finance charge, reasonable bona fide foreign transaction fee, and bona fide but unreasonable cash advance fee.

Answer 26

All of the fees.

If a creditor imposes any fee (other than a periodic
rate or charges that must be included in the MAPR) that is not a bona fide fee and imposes a finance charge on a covered borrower, the total amount of those fees, including
any bona fide fees, and other finance charges shall be included in the MAPR.

Question 27

When are creditors expected to compute the MAPR for open ended credit?

Answer 27

Provide an estimate at beginning of billing cycle.

Calculate, waive fees or periodic charges to comply with MLA at end of billing cycle.

Question 28

What is the MAPR for the following example?

Closed end: single advance, single payment transaction loan extended to a covered borrower for a period of 45 days, and for which the advance is $500.00
and the single payment required consists of the principal amount plus a finance charge of $28.44, for a total payment of $528.44

See Appendix J (c)(5) reg Z for formula.

Answer 28

MAPR = 46.14%

Exceeds limit of 36%

Question 29

What is the MAPR for the following example?

Open end: Suppose a
creditor offers a line of credit to a covered borrower
primarily for personal, family, or household purposes (commonly referred to as a “personal line of credit”), and permits the borrower to repay on a monthly basis. Upon establishing the personal line of credit, the covered borrower borrows $500.00. The creditor charges a periodic rate of 0.006875 (which corresponds to an annual rate of 8.25%), plus a fee of $25.00, charged when
the account is established and annually thereafter.

Answer 29

MAPR = 68.26%

dividing the total amount of the finance charge for the
billing cycle”—which is $3.44 (corresponding to
(0.006875) x ($500)), plus $25.00—“by the amount of the balance to which it is applicable”—$500—and
multiplying the quotient (expressed as a percentage) by the number of billing cycles in a year”—12 (since the creditor allows the borrower to repay monthly), which is 68.26
percent.

Even though the periodic rate of 0.006875 complies with MLA, the resulting MAPR is in excess of 36% because the amount borrowed is low at the time the annual fee is imposed.

Question 30

What is the safe harbor for creditors to determine when someone is a covered borrower?

Answer 30

• Verify status using DOD database

- Verify status using credit report.

Question 31

True or false: A creditor can perform a historical look back through the DOD website on an applicant to determine if they had been covered at the time the account was established.

Answer 31

False: Historic look backs are prohibited. After a consumer entered into a transaction or established an account, a creditor may not obtain information from the DOD database to determine if the borrower was covered at the time of the transaction.

Question 32

On what dates must a creditor create and maintain a record for a covered borrower?

Record retention?

Answer 32

• Date consumer initiates transaction or 30 days prior
• Date consumer establishes an account or 30 days prior
• Date bank process a firm offer of credit as long as consumer responds within 60 days.

There is no record retention requirement

Question 33

Does and action by a creditor on an existing account, such as to increase the credit limit, alter the status of the creditors prior determination for the account?

Answer 33

No, the original covered borrower determination will do.

Question 34

Does a creditor need to check if someone is a covered borrower if they have an existing account but are applying for a new product, opening a new account, extending a new line of credit?

Answer 34

Yes.

a creditor must use one of
the safe harbor methods when extending a new consumer credit product or newly establishing an account for consumer
credit, including a new line of consumer credit that might be associated with a pre-existing transactional account held by the borrower

ex: when customer applies for an overdraft line of credit with an existing credit account.

Question 35

What are the required written and oral loan disclosures under MLA? (3)

Answer 35

• Statement of the MAPR (in written form borrower can keep)-oral and written
• All required TILA disclosures - written
• Clear description of payment obligation. (payment schedule or account opening disclosure)-oral and written

Question 36

What is acceptable as the statement of the MAPR for disclosure purposes?

Answer 36

Description of charges creditor may impose to calculate the MAPR. Numerical values are not required

Question 37

How can the Statement of MAPR and Payment obligation disclosures be provided orally?

Answer 37

If the information is provided in person

If a toll free number is provided to deliver oral disclosures on the written disclosures.

Question 38

Are new disclosures required for a refinance or renewal of consumer credit?

Answer 38

Yes, only when the transaction for that credit is considered a new transaction requiring disclosures under Reg. Z

Question 39

Can a creditor roll over, renew, repay, refinance or consolidate any consumer credit of a covered borrower with proceeds of consumer credit from the same covered borrower and same creditor?

Answer 39

No this is unlawful.

Question 40

What dispute resolution procedures can creditors not require of covered borrowers? (3)

Answer 40

• waive a covered borrowers right to legal recourse
• submit to arbitration or other legal notice provisions in case of dispute
• give unreasonable notice as a condition for legal action.

Question 41

Payment terms and conditions a creditor cannot require/use?

Answer 41

• use title of vehicle as security for an obligation
• require covered borrower establish an allotment to repay the obligation.
• prohibit prepayment or charge a prepayment penalty.
• use a check or other method of access to a deposit, savings, or other account to collect payments and deprive borrower of control over payment decisions.

Question 42

What payment terms and conditions can a creditor use regarding account access? (3)

Answer 42

• require EFT to repay credit transaction
• require direct deposit for credit eligibility
• take a security interest in deposit funds after credit extension.

Question 43

Are co-signers and guarantors covered borrowers under MLA?

What if the primary borrower isn’t a covered borrower?

Answer 43

Yes, if they are either:

• a covered member of the military
• a dependent of a covered member

Regardless if the primary borrower is a covered member or depended of covered member.

Question 44

Can MLA disclosures be provided in electronic format?

Answer 44

Yes, as long as the requirements for E-sign are met.