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  • 5 Tips to Prepare for New HMDA Reporting
    August 15, 2016
    Kathleen C. Ryan & Sherry-Maria Safchuk

    Last October, the Consumer Financial Protection Bureau published a final rule amending Regulation C, which implements the Home Mortgage Disclosure Act. The CFPB drafted the amendments in response to specific congressional directives in the Dodd-Frank Wall Street Reform and Consumer Protection Act, and under its discretionary authority to implement HMDA through Regulation C. Broadly, the new rules change:

    • Who must report HMDA data, by setting uniform loan-volume thresholds for depository and nondepository institutions, including thresholds for open-end lines of credit
    • The data elements that must be reported, by adding new data elements and modifying existing ones
    • What types of loans and applications (transactions) must be reported
    • When HMDA data must be submitted to the CFPB, for certain large-volume HMDA filers

    Given the magnitude of these changes to Regulation C, financial institutions should take steps now to ensure that they are prepared to submit accurate and complete HMDA data under the new rules. Violations of Regulation C can result in administrative sanctions, including fines and resubmission requirements. In addition, inaccurate HMDA data can also impair analyses of an institution’s performance under fair lending laws, including the Equal Credit Opportunity Act, the Fair Housing Act and the Community Reinvestment Act, which may negatively impact an institution.

    The following are five tips to consider when preparing for reporting under the new HMDA rule. Most of the CFPB’s changes to Regulation C take effect on Jan. 1, 2018, with certain exceptions, as discussed below.

    Tip 1 — Understand How the Effective Dates Work: The CFPB’s final rule contains several effective dates. Not only does an institution need to be aware of these dates, but it also needs to understand how the new rule will apply on each date so that it can plan and implement changes to systems, operations and training accordingly.

    • Jan. 1, 2017: Depository institutions with low-loan volumes in 2015 and 2016 will be excluded from HMDA’s coverage for 2017 and will not have to collect and report data for 2017.
    • Jan. 1, 2018: An institution covered by HMDA must collect and report the new and modified data points, and newly covered transactions, if the institution takes final action on the covered application, closed-end mortgage loan, or open-end line of credit on or after Jan. 1, 2018. Notably, however, an institution must not begin collecting information on ethnicity and race using the new HMDA rule’s expanded ethnicity and race subcategories until Jan. 1, 2018.
    • Jan. 1, 2020: Financial institutions with large HMDA filings must begin submitting their HMDA data on a quarterly basis in 2020. Such an institution will submit its data for a calendar quarter within 60 days of the end of the quarter, except for the fourth quarter — the institution will submit its data for that quarter by March 1 of the next calendar year with its annual report.

    As a result, institutions must be prepared to distinguish between loans for which the institution must comply with the 2017 requirements of HMDA as compared to the loans that must comply with the 2018 version of HMDA. This is especially important for the requirements that apply effective Jan. 1, 2018. Lenders are required to begin collecting, recording and reporting the new and modified data points for applications on which final action is taken on or after this implementation date. Therefore, an application for a home purchase in late November 2017 could close in December 2017 or January 2018. For such loans, lenders will need to be ready to collect the new data (with some exception as discussed above) and track the application to determine how it should report the information based on whether final action was taken in 2017 or 2018.

    Click here to read the full article at www.law360.com.

  • Corporations May Be People, But They Are Not Servicemembers
    August 7, 2016
    Valerie Hletko & Sasha Leonhardt

    The Servicemembers Civil Relief Act enables servicemembers “to devote their entire energy to the defense needs of the Nation” by deferring or suspending certain obligations during active duty and for certain periods after the end of active duty. The SCRA’s core protections include interest-rate reductions on certain credit obligations, and the prevention of foreclosure and repossession of certain property.

    Both federal regulators and individual plaintiffs have pushed to expand the SCRA’s protections to cover a broader range of obligations and liabilities. The business obligations of individual servicemembers is one area of increasing focus, as typified by a recent case, Davis v. City of Philadelphia. A servicemember attempted to reduce the risk of personal liability by transferring property to a corporation that he owned. He did not realize, however, that the transfer would operate to remove the property from potential future SCRA protections.

    The 3d U.S. Circuit Court of Appeals delivered the first appellate opinion on the issue, affirming a district court’s order dismissing the case and holding that SCRA protections do not attach to property owned by a corporation — and provided much-needed guidance on the limits of the SCRA’s reach.

    Michael Davis and his wife attempted to “insulate themselves from liability” by transferring full ownership of their rental property to Global Sales Call Center, a Pennsylvania corporation solely owned and managed by Davis. In 2009, after several periods of military service, Davis requested that the Philadelphia Department of Revenue reduce the interest accruing on Global’s property tax debt under the SCRA because Davis was a servicemember.

    The city department denied Davis’s request on the basis that Global was a corporation and not a servicemember entitled to the SCRA’s benefits and protections. Davis’ ownership of Global did not change the analysis. Davis, at the direction of the revenue department, filed a tax abatement petition with the Philadelphia Tax Review Board in 2010, requesting a recalculation of the interest and penalties against his property. The Review Board agreed with the revenue department and denied Davis’s petition.

    Originally published in Consumer Financial Services Law Report; reprinted with permission.

  • FinCEN’s Lack of Policies and Procedures for Assessing Civil Money Penalties In Need of Reform
    July 25, 2016
    Robert B. Serino

    In remembrance of Bob Serino and his many contributions to both the field of banking law and the financial services community, the ABA Banking Law Committee would like to honor his accomplishments and rich life and career. After a long illness, Bob recently passed away while this article was pending publication.

    There are few in our profession so universally liked and respected as Bob. His long career at the Office of the Comptroller of the Currency (OCC) made a lasting mark. He set up the OCC’s first formal enforcement office, pioneered anti-money laundering enforcement, and served for many years as deputy chief counsel. When he left the agency, he established the OCC Alumni Association, which last year was renamed the Robert Serino OCC Alumni Association. Bob subsequently joined BuckleySandler LLP, where he was a partner. He also served as a captain in the U.S. Navy Reserves.

    What engaged Bob most was connecting with other people. He mentored many young lawyers and gave generously of his time and advice to colleagues. He knew how to nurture a friendship and had a wide circle of friends and colleagues, all of whom will deeply miss him.


    For many years, federal banking agencies have used publicly available processes, procedures, and matrices to determine both whether a Civil Money Penalty (CMP) is justified and, if so, the size of the penalty. Most recently, on February 26, 2016, the OCC published a revised Policies and Procedures Manual “to ensure the statutory and 1998 FFIEC Interagency Policy factors are considered in CMP decisions, and to enhance the consistency of CMP decisions.”

    In contrast, the Financial Crimes Enforcement Network (FinCEN) has no publicly disclosed CMP matrix or procedures to determine either a penalty is warranted or, if so, the appropriate amount. Thus, there is no publicly known process in place to ensure that FinCEN’s vast power is applied consistently and equitably. There is an urgent need for FinCEN to bring its CMP assessment process into alignment with other regulators.

    Banks, Bank Secrecy Act officers, and other institution-affiliated parties live under constant threat of a FinCEN CMP, yet have no inkling whether they are, in fact, at risk and the extent of the risk. The agency’s reluctance to publish its CMP standards and procedures perpetuates banks’ and other regulated entities’ perceived lack of due process. Moreover, the uncertainty created by FinCEN’s opacity is causing havoc among compliance officers. FinCEN’s failure to act contributes to the exodus of compliance officers who face a high degree of uncertainty because of the lack of guidance on whether they may be subject to a FinCEN CMP and the amount of the penalty. Lalita Clozel,Exodus of Compliance Officers Seen if NY Plan Goes Through, American Banker, Feb. 24, 2016 (discussing potential effects on compliance officers if New York implements regulation requiring compliance officers to certify compliance with bank secrecy laws with the threat of criminal action if a problem arises); Jerry Buckley, The Compliance Officers Bill of Rights, American Banker, Feb. 22, 2016 discussing concerns of compliance officers and need to establish protections for them so that they can perform their duties in good faith and without fear of the unknown).To illustrate, in December 2014, FinCEN assessed a $1 million civil money penalty against the chief compliance officer/senior vice president of government affairs at a major money transmitter. And in January 2016, a U.S. district court ruled that the corporate officers could be held personally liable for Bank Secrecy Act compliance failures.

    Click here to read the full article at www.americanbar.org.

  • Mortgage Industry Struggles to Avoid Vendor Management Land Mines
    July 11, 2016
    Elizabeth E. McGinn & Moorari K. Shah

    October 3, 2015, marked the official effective date of the long-anticipated, and widely dreaded, TILA-RESPA Integrated Disclosure (TRID) rule. Mortgage professionals have learned from a half-decade deluge of regulation that their TRID fate, along with almost every other aspect of the industry’s ability to comply with the new regulatory regime, lies largely in the hands of third-party vendors.

    Vendors ranging from independent mortgage brokers to disclosure preparation companies to settlement service providers span the entire origination process. In a rare acknowledgement of the problems associated with unreliable vendors, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray told an audience of mortgage bankers just two weeks into the TRID rule’s existence:

    ‘‘Some vendors performed poorly in getting their work done in a timely manner, and they unfairly put many of you on the spot with changes at the last minute or even past the due date. It may well be that all of the financial regulators, including the [CFPB], need to devote greater attention to the unsatisfactory performance of these vendors and how they are affecting the financial marketplace.’’

    Cordray’s remarks ultimately provide little comfort to mortgage lenders that must bear responsibility for vendors who fail to individually and collectively maneuver around TRID’s many land mines. In that regard, the TRID rule is no different than any other industryshifting paradigm advanced by the Bureau in its short but notable five-year reign.

    Considerable investments to absorb and adjust to new laws and regulations have not altered the reality that coordinating the efforts of vendors will continue to determine whether the mortgage industry can ever conquer the heavy compliance burden it now faces. Along with vendor management concerns arising under the TRID rule, this article explores a number of mortgage industry challenges related to vendor management that have been the focus of intense CFPB enforcement efforts during the past year and are likely to continue into the foreseeable future.

    Back to the Future

    Throughout its existence, the CFPB’s vendor management arsenal has had a familiar tendency, consisting mostly of (1) ominous guidance bulletins, (2) invective-laden enforcement actions, and (3) cryptic signals of future enforcement. In so doing, CFPB regulators have honed in on long-standing compliance pressure points involving third parties, including marketing services agreements (MSAs), deceptive advertising of ancillary products, and prohibited loan originator compensation. In addition, a number of multi-party transactions, such as the delicate relationships among lenders, appraisal management companies (AMCs) and independent appraisers, figure to result in almost certain vendor management enforcement in the post-TRID era.

    To be sure, other federal agencies such as the Federal Reserve Board (Fed) and the Office of the Comptroller of the Currency (OCC) have more modestly echoed the CFPB’s warnings with respect to vendor relationships, and many in the mortgage industry have heeded the regulators’ calls and wisely redoubled their efforts with respect to vendor management.

    The efforts have resulted in, among other improvements, robust policies and procedures that cover vendor selection, contract negotiation and ongoing monitoring, as well as compliance training for everyone from the board of directors and senior management down to line-level employees. Nonetheless, whether because of the TRID rule or otherwise, many mortgage companies continue to grapple with fundamental changes to—and in some cases elimination of—age-old industry conventions.

    Originally published in Bloomberg BNA; reprinted with permission.

  • Verdicts Set Important Precedent for Paperless Mortgage
    June 28, 2016
    Margo H.K. Tank

    It’s no secret that digital is overtaking the finance industry, and mortgage is no exception. However, while end-to-end digital mortgage solutions exist that ensure secure management of documents and loans throughout the entire process, from loan execution through post-lifecycle management, adoption continues to be slow throughout this industry. Among the common justifications for the delay has been a lack of confidence in these processes and documents to withstand legal challenges.

    Hopefully, these excuses can finally be put to rest. Two separate court decisions have recently set the precedent that electronically signed promissory notes secured by real property (eNotes) are legally enforceable by lenders. These decisions address many concerns held by investors about buying eNotes and suggests further clarity may have to come from case law as the digital mortgage industry matures.

    Embracing the Shift and Meeting Demands

    Deeply traditional, the mortgage industry is rooted in hard-copy, multi-party financial service processes, causing the adoption of digital to be sluggish and restricted. However, demand by the key players and regulators for digital capabilities are spurring the advancement of digital transaction management (DTM), which, as noted in a study conducted by Aragon Research, is expected to grow into a $30-billion market by 2020.

    In addition to the demand for digital, a recent white paper from PwC states, “As regulatory expectations for mortgage originations continue to evolve in scope and complexity, the digital mortgage and its data-driven processes can provide the required transparency and accessibility to consumer data. Lenders who adopt a digital mortgage platform can more easily automate many aspects of their quality control (QC) and compliance program, enabling them to strengthen and streamline their processes and examination outcomes.”

    It is worth noting that the first all-digital paperless home purchase and mortgage transactions in the United States was performed in July of 2000 and showed how the entire home-buying process from closing the loan, recording the documents and delivering the package to the secondary mortgage market took less than three hours to complete.

    Click here to read the full article at www.eoriginal.com.

Knowledge + Insights

  • Special Alert: CFPB Finalizes Amendments to Mortgage Servicing Rules
    August 9, 2016

    On Thursday, the CFPB issued its long-awaited final amendments to the mortgage servicing provisions of Regulations X and Z. The Bureau had sought comment on the proposed rule in December 2014, more than 18 months ago. Spanning 900 pages, the final rule makes significant changes that will impact servicers even as it clarifies several points of confusion with the existing regulations. Most significantly, the amendments extend existing protections to successors in interest and borrowers who have previously been evaluated for loss mitigation under the rules, brought their loans current, and then experienced new delinquencies. The amendments also require servicers to provide modified periodic statements to borrowers in bankruptcy. In coordination with the final amendments, the Bureau published an interpretive rule under the Fair Debt Collections Practices Act (FDCPA) to address industry concerns about conflicts with the servicing rules.

    A summary of the key amendments is provided below. Unless otherwise stated below, the amendments take effect 12 months from the date of publication of the rule in the Federal Register, which has not yet occurred. If recent experience is any guide, we anticipate that publication in the Federal Register may be delayed for as long as a month, given the length of the final rule, commentary, and preamble.

    Please join BuckleySandler attorneys Ben Olson, Michelle Rogers and Kitty Ryan for a webinar on September 7 to further discuss the amended rules and their compliance, examination and enforcement implications. Invitation and registration information to follow.

    Click here to view the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: CFPB Proposes Amendments to Know Before You Owe/TRID Rule
    August 3, 2016

    On Friday, the CFPB issued its much anticipated proposal to amend the KBYO/TRID rule. The CFPB crowded dozens of proposed changes into the almost 300 page proposal, most of which are highly technical and require careful examination. As the Bureau has signaled since its intention to issue amendments was first announced, the proposal is not intended “to revisit major policy decisions” because “[t]he Bureau is reluctant to entertain major changes that could involve substantial reprogramming of systems so soon after the October 2015 effective date or to otherwise distract from industry’s intense and very productive efforts to resolve outstanding implementation issues.” However, it has “proposed a handful of substantive changes where it has identified a potential discrete solution to a specific implementation challenge.”

    If finalized, the amendments should resolve a number of significant ambiguities that have generated concerns about the liability of lenders and purchasers of mortgage loans and hampered loan sales, particularly the so-called “Black Hole” that can arise when closing is unexpectedly delayed. However, because it is unclear in most cases whether the Bureau intends the amendments to apply only prospectively and because the amendments would not alter the provisions for “curing” errors, these liability concerns will remain for loans originated prior to the effective date of the amendments. Furthermore, because the industry has been forced to make loans since October 2015 despite these ambiguities, it will be necessary in many cases to revise existing systems and practices to comply with the amended rule. Finally, in some cases, the Bureau seems to have gone beyond resolving ambiguities and is instead seeking to make targeted policy changes to the rule.

    Although the proposed amendments are too voluminous and technical to be summarized comprehensively, we have highlighted a number of the more significant proposed changes below. Note that the CFPB specifically requested feedback on a number of the issues addressed in the proposal. Comments are due on or before October 18, 2016.

    Click here to view the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: CFPB Releases Outline of Proposed Rule for Third Party Debt Collectors
    August 2, 2016

    On July 28, the CFPB announced that it is considering proposing a rule to “overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt.” The CFPB released several related documents, including a report on third-party debt collection operations and an outline of the proposal (the “Outline”) that will be presented to a panel of small businesses pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA). Under the SBREFA process, the CFPB first seeks input from a panel of small businesses that likely will be subject to the forthcoming rule. A report regarding the input of those reviewers is then created and considered by the CFPB before issuing its proposed rule.

    While the CFPB’s earlier Advanced Notice of Proposed Rulemaking posed questions regarding collections by creditors and first party collectors, the Outline only addresses proposals for third party collectors (i.e., collectors operating in their own name when collecting on behalf of others including debt buyers and collection law firms). Based on remarks by Director Cordray, the CFPB is expected to address first party collections separately. That said, in practical terms the outline in effect would impose certain new compliance obligations on creditors.

    The Outline’s proposals for third party collections notably include (i) requirements to obtain and review information substantiating consumer debts to be collected; (ii) requirements regarding the transfer of information when consumer debts are transferred; (iii) revisions and additions to the debt validation notice; (iv) required disclosures when collection communications are made in connection with time-barred debt (as well as a prohibition on filing suit in connection with time-barred debt); and (v) limits to the contacts and contact attempts made in connection with a debt. These and other requirements proposed in the Outline are discussed further below.

    Click here to view the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: Maryland Ruling Opens New Front in Battle Over Bank Partnership Model
    July 22, 2016

    On June 23, the Maryland Court of Appeals affirmed a lower court judgment holding that a non-bank entity assisting consumers obtain loans from an out-of-state bank and then repurchasing those loans days later qualifies as a “credit service business” under the Maryland Credit Services Business Act (MCSBA), requiring a state license among other obligations. CashCall v. Md. Com’r of Financial Reg., No. 24-C-12-007787, 2016 WL 3443971 (Md. Ct. App. June 23, 2016). This holding is of particular importance to marketplace lending platforms that rely on bank partnerships to originate consumer loans because, in addition to requiring a license, the MCSBA prohibits licensees from arranging loans for out-of-state banks above Maryland’s usury ceiling.

    In light of the ruling, the MCSBA could provide a roadmap for other states to test the limits of federal law, which specifically authorizes banks to export interest rates permitted by their home state notwithstanding another state’s usury limitations. Perhaps in view of a potential future challenge on federal preemption grounds, the CashCall Court appears to have gone out of its way to state in dictum that the non-bank entity was the “de facto lender” based on its efforts to market, facilitate, and ultimately acquire the loans it arranged. In so doing, the Court provides a strong suggestion that it might have reached the same result relative to the state’s usury laws under the “true lender” theory that has gained some traction in other actions against non-bank entities.

    While the most immediate impact of the Court’s ruling is to uphold the state financial regulator’s cease and desist order and $5.65 million civil penalty, the case also creates additional risk and uncertainty for marketplace lending platforms and other FinTech companies seeking to maintain a regulatory safe harbor through the bank partner model. We analyze here the import of this latest case as part of the appreciable tension building as state law theories appear to be increasingly penetrating chinks in the armor of federal preemption principles.

    Click here to view the full Special Alert. 

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    Join BuckleySandler attorneys on August 11, 2016 from 2:00-3:00pm ET for a discussion on recent developments related to partnerships between banks and alternative lenders. The lower costs, simpler products, and consumer convenience ushered in by digital lending means it is here to stay. But regulatory turbulence suggests that some mid-course corrections may be required. After a year of historic growth in 2015, the first half of 2016 has seen a series of potentially game-changing events for the marketplace lending industry, including the Supreme Court’s decision not to consider an appeal from the Second Circuit’s ruling in Madden v. Midland Funding, LLC. We will review the implications of Madden and several other recent court decisions and regulatory actions as they relate to federal preemption, “true lender” challenges, state licensing requirements, and other issues.

    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • 100 Days Until the MLA: Compliance Challenges and Open Questions Before the New MLA's Rule Implementation
    June 24, 2016
    Sasha Leonhardt

    With only 100 days until the new Military Lending Act (MLA) rule takes effect on October 3, 2016, many financial institutions have begun enacting procedures to ensure they are compliant with the new regulation by the effective date. With the implementation of this new rule, financial institutions continue to work towards full compliance with the requirements imposed by the Department of Defense (DoD), but there are growing pains. As this deadline draws near, there are several important compliance concerns that financial institutions must keep in mind and a number of issues where the industry is concerned about unclear language.

    What types of credit are covered by the new MLA rule?

    The 2007 MLA rule was limited to three specific types of products: payday loans, vehicle title loans, and refund anticipation loans. However, under the new rule, the MLA will cover a far broader range of products. The DoD sought to match the definition of credit under the Truth in Lending Act’s (TILA) implementing regulation—Regulation Z—so the new MLA rule will cover any credit that is (i) primarily for personal, family, or household purposes, and (ii) either subject to a finance charge under Regulation Z or payable by written agreement in more than four installments.

    However, the new MLA rule excludes four specific types of transactions:

    • Residential mortgages, which are defined as credit transactions secured by an interest in a dwelling. This includes purchase money home mortgages, as well as construction mortgages, refinance mortgages, home equity loans, home equity lines of credit, and reverse mortgages.
    • Motor vehicle purchase loans that are secured by the vehicle being purchased. Importantly, motor vehicle refinance loans are not excluded, and therefore are covered by the new MLA rule.
    • Personal property purchase loans that are secured by the personal property that is being purchased. As with motor vehicle refinance loans, any refinance or other non-purchase loan secured by personal property is not exempt from MLA compliance.
    • Any transaction exempt from TILA (other than pursuant to a state exemption under 12 CFR § 1026.29) or otherwise not subject to disclosure requirements under Regulation Z (such as business-purpose loans).

    How do I determine if a customer is a covered borrower under the MLA? What is the MLA safe harbor?

    The MLA only applies to “covered borrowers,” a term that includes individuals who are servicemembers or the dependents of servicemembers at the time a qualifying loan was originated. Under the new MLA rule, there are four different safe harbors that a creditor may use to determine if a customer is a covered borrower:

    • Online MLA Database (Individual Record Request): This is a free resource provided by the Department of Defense Manpower Data Center (DMDC) that requires the lender to manually enter a customer’s last name and date of birth/Social Security number to obtain a single result from a website. It provides a results certificate in seconds if the database is operational.
    • Online MLA Database (Batch Record Request): This is a free resource provided by the DMDC that permits a creditor to upload a spreadsheet with identifying information for up to 250,000 individuals, and the system provides results within 24 hours if the database is operational.
    • DMDC Direct Connection: This is a free resource provided by the DMDC that will permit certain large creditors to access the DMDC through a direct data link and obtain results instantaneously. The DMDC is still working to set this up and there will only be a handful of connections available to the largest creditors.
    • Consumer Reporting Agency: Under the MLA rule, a code in a consumer report received from a consumer reporting agency can also provide safe harbor protection. Although there are many benefits to this approach, there will be a cost associated with it, and it is unclear if it will be available prior to the October 3, 2016 implementation deadline.

    As long as a creditor retains the results of the safe harbor search, these results are “legally conclusive,” even if the customer was in fact on military service at the time of origination or account opening.

    What is the Military APR (MAPR)?

    The new MLA rule, like its 2007 predecessor, applies a MAPR cap of 36 percent to any debt that is covered by the MLA. The MAPR includes both the finance charges that are included under the Regulation Z APR calculation, as well as credit insurance premiums, debt suspension fees, ancillary product fees, and certain application and participation fees, among other costs and fees.

    The MAPR need not be disclosed. However, in many instances, creditors need to refine their existing systems—or create a new system—to calculate the MAPR on a billing period-by-billing period basis to ensure that the MAPR never exceeds 36 percent in any billing cycle for as long as the customer remains a covered borrower.

    What other protections are provided by the new MLA rule?

    In addition to the 36 percent MAPR limit, the MLA rule also places several other limits on the terms of an extension of credit to a covered borrower. Under the MLA, a creditor may not:

    • Roll over, renew, repay, refinance or consolidate any consumer credit extended to the covered borrower by the same creditor with the proceeds of other consumer credit extended by that creditor to the same covered borrower
    • Require the borrower to waive his or her right to legal recourse under any state or federal law
    • Require the borrower to submit to arbitration or impose onerous legal notice requirements in the event of a dispute
    • Demand unreasonable notice from the borrower as a condition for a legal action
    • Use a check or other method to access a consumer’s financial account, with certain exceptions
    • Use a vehicle title as a security for an obligation, with certain exceptions
    • Require the consumer to establish an allotment to repay the debt
    • Prohibit the consumer from prepaying the credit or impose a prepayment penalty

    What disclosures must be provided under the new MLA rule?

    The MLA rule requires three different written disclosures to the consumer before or at the time the borrower becomes obligated on the account: (1) a statement regarding the MAPR (which is not a disclosure of the numeric MAPR and may be satisfied using a model statement provided in the rule itself); (2) any disclosures required by Regulation Z; and (3) a clear description of the payment obligation of the borrower (which may be a payment schedule for closed-end credit or an account opening disclosure for open-end credit).

    In addition, the MAPR statement and the description of the payment obligation must also be offered to the consumer orally before or at the time the borrower becomes obligated on the account. A creditor can satisfy this requirement by either providing the information to the customer in person, or by providing a toll-free telephone number that the consumer may call to obtain this information.

    Are credit cards covered under the new MLA rule?

    Yes, credit cards are covered under the new MLA rule. However, credit card issuers have an additional year to comply with the MLA rule’s requirements and need not have their compliance plans in place until October 3, 2017.

    As we approach the October 3, 2016 implementation date, what are some areas of uncertainty under the MLA rule?

    As it is currently written, there are several loan products and scenarios covered by the new rule where it is unclear how regulators and the courts will apply the MLA’s protections. Among the areas where there is some uncertainty under the MLA are the following:

    • How can creditors ensure full compliance with the oral notice requirements under the MLA? Is it necessary to provide account-specific disclosures orally before the loan has been made and boarded onto the lender’s system?
    • For creditors issuing credit based upon a telephone call from a consumer, how can they best comply with the requirement to provide written disclosures before the borrower becomes obligated?
    • How can creditors best structure their account agreements so that they can use one account agreement for both MLA and non-MLA customers?
    • If a creditor assigns an account to a third party, can the third party also enjoy the protections of the MLA covered borrower safe harbor?
    • If the consumer reporting agencies have not reached an agreement with the DMDC to provide active duty information, how can financial institutions determine military status when issuing credit through instantaneous, automated (e.g. online or retail point-of-sale) channels?