Consumer Compliance Outlook > 2017> Second Issue 2017Consumer Compliance Outlook: Second Issue 2017
By Lanette Meister, Senior Supervisory Consumer Financial Service Analyst for Supervisory Policy and Outreach; Lorna Neill, Senior Counsel in Consumer Laws and Regulations; Amal Patel, Senior Supervisory Consumer Financial Service Analyst for Supervisory Policy and Outreach; and Vivian Wong, Senior Counsel in Consumer Laws and Regulations, Board of Governors of the Federal Reserve System
High-cost credit and the resulting debt burden can have serious adverse consequences for members of the armed services and their families, according to the U.S. Department of Defense (DOD).
“Financial burdens can undermine military readiness, damage the morale of servicemembers and their families, and add to the cost of maintaining an effective all-volunteer military defense force.”1 To highlight financial institutions’ compliance obligations for servicemembers, this article discusses key provisions of the following federal laws, regulations, and guidance:
- The Military Lending Act (MLA) and its implementing regulation;
- The Servicemembers Civil Relief Act (SCRA);
- Regulations concerning military allotments; and
- Interagency guidance regarding mortgage servicing practices for military homeowners with permanent change of station orders.
The article also reviews effective compliance management measures that financial institutions can adopt to ensure that appropriate financial protections are afforded to servicemember customers and their dependents.
MILITARY LENDING ACT AND SERVICEMEMBERS CIVIL RELIEF ACT: OVERVIEW
The federal statutory framework for protecting servicemembers for consumer financial products and services consists of the MLA and the SCRA. The information in this section discusses highlights of each law and clarifies significant differences between them.
Both the MLA and the SCRA focus on protecting the financial interests of servicemembers and their dependents but differ in their scope. The MLA provides protections to servicemembers and their dependents for credit extended while the servicemember is serving on active duty. In contrast, the SCRA protects servicemembers and their dependents with obligations incurred prior to entry into active duty.
THE MLA AND THE MLA REGULATION2
The MLA was enacted in 2006 with the goal of protecting active duty military personnel, including those in the active National Guard or Reserve, as well as their spouses and other dependents, engaged in consumer credit transactions.3 Notably, the MLA limits the cost of covered transactions, which are subject to a Military Annual Percentage Rate (MAPR) cap of 36 percent.
The DOD has rulewriting authority to implement the MLA and originally issued a final rule in 2007.4 This rule applied solely to three closed-end credit products: payday loans for no more than $2,000 and with a term of 91 days or fewer, motor vehicle title loans with a term of 181 days or fewer, and tax refund anticipation loans.
In July 2015, the DOD amended the MLA regulations, considerably broadening the types of consumer credit products within the scope of its coverage.5 Explaining that “the narrowly defined parameters of the credit products regulated as ‘consumer credit’ under [the 2007 rule] do not effectively provide the protections intended to be afforded to Service members and their families under the MLA,” the DOD expanded the scope of the MLA regulation generally to apply to most types of credit covered under the Truth in Lending Act (TILA) and Regulation Z.6 However, consistent with the MLA statute, the 2015 final rule continues to exempt home-secured credit and loans to finance the purchase of motor vehicles and other consumer goods that are secured by the purchased item.7 Accordingly, under the 2015 final rule, most credit products within the scope of TILA and Regulation Z are subject to MLA protections, including credit cards, deposit advance products, overdraft lines of credit,8 and certain installment loans.
The 2015 final rule also modified the fees that must be included when calculating the MAPR,9 the optional safe harbor provisions for creditors to determine whether consumers are entitled to MLA protections,10 and the MLA disclosure requirements.11
Consumer credit that was extended and consummated between October 1, 2007, and October 3, 2016, is subject to the 2007 regulation. The compliance date for the 2015 final rule was October 3, 2016, except for credit card accounts, for which the compliance date is October 3, 2017.12 Aspects of the MLA regulation are discussed here in more detail.
COVERAGE
The protections in the MLA regulation apply to consumer credit extended to a covered borrower. As noted, the MLA regulation’s definition of consumer credit was significantly broadened in 2015 and now aligns more closely with the definition of the same term in Regulation Z. Specifically, consumer credit is defined as “credit offered or extended to a covered borrower 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 four installments.”13 Also, the MLA exempts home-secured credit and loans to finance the purchase of motor vehicles and other consumer goods that are secured by the purchased item.
A covered borrower is a covered member of the armed forces, or a dependent of a covered member, who becomes obligated on a consumer credit transaction or establishes an account for consumer credit.14 Under the MLA, covered members of the armed forces include members of the Army, Navy, Marine Corps, Air Force, or Coast Guard currently serving on active duty pursuant to Title 10, Title 14, or Title 32 of the U.S. Code under a call or order that does not specify a period of 30 days or fewer, or such a member serving on Active Guard and Reserve duty as that term is defined in 10 U.S.C. §101(d)(6).
If a consumer opens a credit card account when the consumer is not a covered borrower, the account is not covered under the MLA even if the consumer later becomes an active duty servicemember. If a consumer opens a credit account while a covered borrower but later ceases active duty, the account is no longer subject to the MLA.
Generally, a creditor under the MLA is a person engaged in the business of extending consumer credit.15 A creditor may use its own process to determine if a consumer is a covered borrower. However, the regulation provides creditors an optional safe harbor from liability in conclusively determining whether credit is offered or extended to a covered borrower by using either of the following methods:
- Verifying the status of a consumer by using information relating to that consumer, if any, obtained directly or indirectly from the DOD’s database, located at https:// mla.dmdc.osd.mil/mla; or
- Verifying the status of a consumer by using information contained in a consumer report obtained from a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis, or a reseller of consumer reports.16
RESTRICTIONS
For covered consumer credit transactions, the MLA and its implementing regulation limit the amount a creditor may charge, including interest, certain fees, and charges imposed for credit insurance, debt cancellation and suspension, and other credit-related ancillary products sold in connection with the account or transaction. The total charge, as expressed through the MAPR,17 may not exceed 36 percent.18 The MAPR includes charges that are not included in the finance charge or the annual percentage rate (APR) disclosed under TILA.
For closed-end credit, the MAPR is calculated following the rules for calculating and disclosing the APR for credit transactions under Regulation Z based on the charges required to be included in the MAPR by the MLA regulation.19 For open-end credit, the MAPR generally is to be calculated following the rules for calculating the effective APR for a billing cycle in 12 C.F.R. §1026.14(c) and (d) of Regulation Z20 (as if a creditor must comply with that section) based on the charges required to be included in the MAPR by the MLA regulation.21
For consumer credit card accounts under an open-end credit plan (not home-secured), certain fees are not required to be included in the MAPR calculation, provided that the fee is both bona fide and reasonable in amount.22 In assessing whether a bona fide fee is reasonable, the fee must be compared with fees typically imposed by other creditors for the same or a substantially similar product or service.23 For example, when assessing a bona fide cash advance fee, that fee must be compared with fees charged by other creditors for transactions in which consumers received extensions of credit in the form of cash or its equivalent. The MLA regulation also provides a safe harbor standard for determining a “reasonable” amount of a bona fide fee for a credit card account.24 There is no exclusion for “bona fide fees” for accounts that are not credit card accounts.
The MLA imposes a number of additional limitations and conditions on consumer credit extended to covered borrowers. These pertain to: (1) rolling over, renewing, repaying, refinancing, or consolidating consumer credit extended to the covered borrower by the same creditor; (2) dispute resolution processes; and (3) payment terms and conditions.25
DISCLOSURES
Under the MLA, if a creditor extends consumer credit (including through the Internet) to a covered borrower, the creditor must provide the borrower with the following information before or at the time the borrower becomes obligated on the transaction or establishes an account for the consumer credit:
- A statement of the annualized MAPR applicable to the extension of consumer credit;
- Any disclosure required by Regulation Z; and
- A clear description of the payment obligation of the borrower, as applicable.26
The statement of the MAPR and the clear description of the payment obligation must be provided in writing in a form the covered borrower can keep.27 A creditor must also provide such required information orally.28 A creditor may satisfy the requirement to provide oral disclosures if the creditor provides the following to the covered borrower: (1) the information in person, or (2) a toll-free telephone number that the covered borrower may call to hear the oral disclosures by telephone.29
CONSEQUENCES OF NONCOMPLIANCE
Statutory amendments to the MLA in 2013 granted enforcement authority for the MLA’s requirements to the agencies specified in TILA. These agencies include the Board of Governors of the Federal Reserve System (the Board), the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, and the Office of the Comptroller of the Currency.30 In addition to the remedies generally available to the listed agencies, the MLA regulation provides that consumer credit contracts that violate the MLA are void from inception.31
As amended in 2013, the MLA regulation provides that any person who violates the statue or implementing regulation is civilly liable for:
- Any actual damage sustained, not less than $500 for each violation;
- Appropriate punitive damages;
- Appropriate equitable or declaratory relief;
- Any other relief provided by law; and
- Costs of the action, including reasonable attorney fees.32
However, the regulations protect against civil liability if a creditor is able to demonstrate by a preponderance of evidence that an MLA violation was unintentional and resulted from a bona fide error.33 Particularly in light of the negative attention that improper treatment of servicemembers typically attracts, MLA noncompliance can also result in significant reputational harm for a creditor.
THE SERVICEMEMBERS CIVIL RELIEF ACT
The Servicemembers Civil Relief Act (SCRA) is designed to ease financial burdens on servicemembers during periods of military service. The SCRA is a stand-alone statute with no implementing regulation or commentary. Several federal financial institution supervisory agencies, including the Board, have authority to take administrative action to enforce the SCRA against the institutions they supervise. The U.S. Department of Justice has the authority to file a civil action in court to enforce the SCRA.34
The SCRA provides protections for military servicemembers primarily as they enter active duty. Military service is defined under the SCRA as including:
- Full-time active duty members of the five military branches (Army, Navy, Air Force, Marine Corps, and Coast Guard);
- Reservists on federal active duty;
- Members of the National Guard on federal orders for a period of more than 30 days;
- Servicemembers absent from duty for a lawful cause or because of sickness, wounds, or leave;
- Commissioned officers in active service of the Public Health Service (PHS) or the National Oceanic and Atmospheric Administration (NOAA).
Financial institution staff can confirm the servicemember status of a customer by:
- Reviewing any orders received from the borrower; or
- Searching the DOD’s Defense Manpower Data Center site at https://scra.dmdc.osd.mil with the appropriate certificate.
Key provisions of the SCRA include the following:
6 PERCENT INTEREST RATE REDUCTION
The SCRA limits the amount of interest that a creditor can charge a servicemember on a financial obligation that was created prior to the borrower’s entry into military service. The SCRA limits this interest to no more than 6 percent per year and requires forgiveness of any interest in excess of that ceiling. The interest reduction must be in effect for the borrower’s period of military service or, in the case of mortgage loans, during the period of military service plus one year thereafter. Under the SCRA, the term interest is defined to include “service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability.”35
To receive the 6 percent interest rate reduction, the servicemember must provide the creditor with a copy of military orders and a written notice requesting the reduction no later than 180 days after the date of the servicemember’s termination or release from military service.36
Once the creditor has received the servicemember’s request to reduce the rate, the creditor must forgive interest greater than 6 percent per year for the applicable time period. Accordingly, if a borrower makes a timely rate reduction request one year after entering military service, the creditor must reduce the rate to 6 percent both retroactively for the prior year as well as prospectively. The creditor is also prohibited from accelerating the payment of principal in response to a properly made request for a 6 percent interest rate reduction.37
The 6 percent interest rate reduction broadly applies to any obligation or liability and would include, among other credit types, mortgages; home equity loans; automobile, boat, and other vehicle loans; credit cards; and student loans.
FORECLOSURE PROTECTION
The SCRA prohibits creditors from selling, seizing, or foreclosing on a servicemember’s real or personal property secured by a mortgage, trust deed, or other security in the nature of a mortgage, without a court order.38 This prohibition is effective during the period of military service and up to 12 months after service. This protection applies only to a servicemember’s obligation on real or personal property that: (1) originated before the period of the servicemember’s military service and for which the servicemember is still obligated, and (2) is secured by a mortgage, trust deed, or other security in the nature of a mortgage.39
In addition, if an action to enforce a mortgage or trust deed is filed during or within one year after the period of military service, under certain circ*mstances a court may delay enforcement or adjust the obligation.40
Protection from repossession of personal property
During the period of a servicemember’s military service, creditors must obtain a court order before terminating the servicemember’s lease or installment purchase contract, or repossessing personal property leased or purchased through an installment contract, for any breach of the contract that occurred before or during military service.41 A court must delay contract termination and repossession proceedings upon a servicemember’s request “when the servicemember’s ability to comply with the contract is materially affected by military service.”42
Servicemember’s right to terminate a lease for a residence or motor vehicle
Under the SCRA, servicemembers are able to terminate any lease of premises that the servicemember or his or her dependents occupy or intend to occupy for a residential, professional, business, agricultural, or similar purpose if the lease was either:
- Entered into before military service or
- Executed by a servicemember while in service who then receives orders for a permanent change of station (PCS) or a deployment, or as an individual in support of a military operation, for a period of 90 days or more.43
If a servicemember pays rent on a monthly basis, once he or she gives proper notice and a copy of his or her military orders, the lease will terminate 30 days after the next rent payment is due.
Additionally, a servicemember may terminate the lease of a motor vehicle for either personal or business use by the servicemember or his or her dependent where:
- The lease is executed by the servicemember before entering a period of military service of 180 days or more; or
- While in military service, the servicemember executes the lease and subsequently receives military orders for a PCS to a location outside the continental United States or from a location outside the continental United States to any other location, or for a deployment with a military unit for a period of 180 days or more.
When responding to a servicemember’s legitimate request to terminate a lease, the lessor may not impose an early termination charge. However, the servicemember may be charged for any unpaid rent or lease amounts owed for the period before lease termination as well as any taxes, summonses, title, and registration fees, or other obligations and liabilities in accordance with the terms of the lease, including reasonable charges for excess wear, that are due and unpaid at the time of lease termination.44
Assignment of life insurance protections
Under the SCRA, if a life insurance policy on the life of a servicemember is assigned before military service to secure the payment of a loan, the creditor is prohibited, during the period of military service and for one year thereafter, from exercising any right or option under the assignment of the policy without a court order.45
Protection from eviction
A landlord must obtain a court order before evicting a servicemember or dependent during a period of military service from premises occupied or intended to be occupied as a primary residence if the monthly rent does not exceed $3,584.99 (by statute, $2,400 adjusted annually for inflation).46
Protection of an exercise of rights under the SCRA
The SCRA protects servicemembers from creditors taking certain negative actions such as denying credit, changing the terms of existing credit, or refusing to grant credit on terms substantially similar to those requested, solely because the servicemember exercised his or her rights or requested protections under the SCRA.47
MILITARY ALLOTMENTS
The military allotment system is a payment mechanism by which a servicemember can direct the deduction of payments from his or her paycheck before the salary is deposited in the servicemember’s deposit account. There are two types of military allotments:
- Nondiscretionary (e.g., court-ordered child support payments, repayment of loans extended by a military relief society)
- Discretionary (e.g., voluntary payments to dependents or other relatives, mortgage or rent payments, payments to repay a loan from a loan or finance company)
Servicemembers are not authorized to have more than six discretionary allotments at any one time. Under rules adopted by the DOD, effective January 1, 2015, servicemembers are not authorized to start allotments for the purchase, lease, or rental of personal property.48
Discretionary allotments for the purchase, lease, or rental of personal property that started before January 1, 2015, are grandfathered; amounts for such allotments may be changed but cannot be re-established once cancelled.49
The MLA regulation also prohibits creditors, other than military welfare societies or service relief societies, from requiring repayment by allotment as a condition to extending certain consumer credit to servicemembers and their dependents.50 Financial institutions should also be aware that the Consumer Financial Protection Bureau (CFPB) has pursued a number of enforcement actions alleging unfair, deceptive, or abusive acts or practices related to repayment by military allotment.51
EFFECTIVE COMPLIANCE MANAGEMENT PRACTICES TO PROTECT SERVICEMEMBER RIGHTS
Financial institutions should build effective compliance management systems to ensure that appropriate financial protections are provided to servicemember customers and their dependents.
SERVICEMEMBER PROTECTION POLICIES AND PROCEDURES
Financial institution management should consider maintaining written policies and procedures approved by the institution’s board of directors that outline the steps for staff to follow when responding to requests for financial services from a servicemember or a servicemember’s dependents,as applicable. The institution’s policies would clearly state where a request is routed, who reviews it and authorizes benefits, and who communicates the decision to the borrower about the request. These procedures could either be stand- alone or incorporated into existing broader procedures.
Some examples of policies and procedures for management to consider regarding MLA and SCRA compliance are included here, although financial institutions should also consider developing policies and procedures addressing other servicemember protections, such as the PCS servicing guidance and military allotment rules. (See sidebar below.)
Active duty military personnel make permanent change of station (PCS) moves approximately every two to four years.53 A PCS is the official relocation of an active duty military service member — along with any family members living with him or her — to a different duty location, such as a military base. For military homeowners, PCS orders that are nonnegotiable and operate under short timelines present unique challenges. Despite these challenges, military homeowners with PCS orders remain responsible for honoring their financial obligations, including their mortgages.
In June 2012, the Board, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency, issued guidance to address mortgage servicing practices that may pose risks to military homeowners with PCS orders. The guidance, “Interagency Guidance on Mortgage Servicing Practices Concerning Military Homeowners with Permanent Change of Station Orders” (Interagency PCS Guidance), discusses risks related to military homeowners who have informed their loan servicer that they have received PCS orders and who seek assistance with their mortgage loans.54
The Interagency PCS Guidance discusses financial institution and mortgage servicer responses when aservicemember provides notice of a PCS. To avoid potentially misleading or harming homeowners with PCS orders, mortgage servicers (including financial institutions acting as mortgage servicers) should:
- Provide homeowners with PCS orders with accurate, clear, and readily understandable information about available assistance options for which the homeowner may qualify based on the information known to the servicer;
- Ensure that employees do not request that the servicemember waive legal rights in order to receive assistance;
- Provide a reasonable means for homeowners with PCS orders to obtain information on the status of their request for assistance; and
- Communicate in a timely way the servicer’s decision regarding requests for assistance from homeowners with PCS orders and include an explanation of the reason for a denial, where required, to provide the homeowner an opportunity to address any deficiencies.
Mortgage servicers can support their efforts to follow this guidance by training employees about the options available for homeowners with PCS orders and adopting mortgage servicing policies and procedures that direct appropriate employee responses to servicemembers requesting assistance.
Policies and procedures for MLA compliance
Regarding the MLA, financial institutions should have appropriate policies and procedures in place, for example: to identify covered borrowers; meet disclosure requirements; calculate the MAPR for closed-end, credit card, and other open-end credit products; and review consumer credit contracts to avoid prohibited terms.
Policies and procedures, for example, should indicate that employees are to provide covered borrowers with a statement of the MAPR, any disclosure required by Regulation Z, and a clear description of the payment obligation before or at the time that a borrower becomes obligated on a consumer credit transaction or establishes a consumer credit account. The procedures would also detail the written and oral methods by which the disclosures are to be delivered.
Financial institutions are also encouraged to establish appropriate policies and procedures to calculate the MAPR for closed-end and open-end credit products (including credit card accounts) so that the charges and fees that must be included and those that may be excluded are accounted for appropriately. Financial institutions would also do well to adopt change management policies and procedures to evaluate whether any contemplated new fees and charges would need to be included in MAPR calculations before these new fees or charges are imposed. Additionally, financial institutions should consider how their staffs may effectively monitor the MAPR in connection with open-end credit products and whether to waive fees or charges, either in whole or in part, to reduce the MAPR to 36 percent or below in a given billing cycle or alternatively not impose fees and charges in a billing cycle that are in excess of a 36 percent MAPR (even if permitted under the applicable credit agreement).
Other best practices may include developing an inventory of products and services offered to servicemembers and their dependents — and potentially developing products and services specifically intended for servicemembers and their dependents, taking into account MLA limitations and MAPR requirements.
Policies and procedures for SCRA compliance
When a servicemember submits a request for an interest rate reduction on any loan covered under the SCRA, for example, procedures would clearly state how employees are to reduce the interest rate on qualified loans. The procedures would include instructions on how to adjust the rate retroactively to the first day of eligibility and how to code the loans to adjust the periodic payments appropriately.
Although not required, a financial institution may want to consider searching for and flagging any additional loans that may qualify for coverage once a servicemember requests an interest rate reduction under the SCRA. Even if the servicemember does not request relief on additional loans at that time, it could be more expeditious for the financial institution to address all loans at the same time.
Additionally, policies and procedures regarding collections, mortgage foreclosures, and repossession of motor vehicles and other personal property would ideally address servicemember protections. Before initiating a foreclosure on a home or repossession of a vehicle or other personal property, the financial institution should determine whether the property is owned by a servicemember. The institution’s policies would provide its personnel with guidance on how to determine ownership.
Foreclosures and repossessions can be lengthy processes, so financial institutions are encouraged to determine whether a borrower qualifies as a protected servicemember several times during the process. For example, in addition to performing an initial determination before beginning a foreclosure, institutions should redetermine the military service status prior to finalizing the foreclosure or repossession. Further determinations may be warranted for more protracted proceedings.
EMPLOYEE TRAINING ADDRESSING SERVICEMEMBER PROTECTION
Financial institutions should provide regular training for all of their employees on servicemember protections. Personnel extending and servicing credit-related products and services should understand an institution’s compliance obligations associated with servicemembers and their dependents and financial institution personnel’s role in ensuring effective compliance.
For example, employee training should also encompass effective and consistent processes to identify servicemembers that are or possibly may be covered by MLA and SCRA rights and protections as well as those to whom military allotment restrictions apply.52
INTERNAL REVIEWS TO MONITOR COMPLIANCE WITH SERVICEMEMBER PROTECTIONS
The financial institution’s quality assurance and audit staff should conduct regular reviews of the institution’s compliance with servicemember financial protection requirements. Internal review or audit findings that report any policy exceptions should be communicated to the institution’s board of directors and senior management for tracking and correction.
MANAGEMENT INFORMATION SYSTEMS AND REPORTING ON SERVICEMEMBER PROTECTIONS
The financial institution’s customer information system (CIS) can be one of its most effective tools to facilitate identification and monitoring of customers eligible for protections under the MLA and/or the SCRA. CIS records flagged as servicemember or servicemember dependent, along with duty status dates, can inform staff tracking and management reporting to ensure that accounts associated with those customers are afforded appropriate protections.
OVERSIGHT OF THIRD-PARTY SERVICER COMPLIANCE WITH SERVICEMEMBER PROTECTIONS
The financial institution’s service provider risk management program should encompass consideration of compliance with servicemember financial protections. The service provider risk management program can vary based on the scope and nature of the institution’s outsourced activities. But the financial institution’s management should ensure that its service provider risk management program extends to any activities that provide financial services to servicemembers or their dependents, as applicable.
In evaluating a financial institution’s compliance management practices to confirm that it adequately addresses servicemember financial protections, the institution’s management should consider each of the previously mentioned elements of a compliance management system.
Notably, with the October 3, 2017, compliance date for new MLA rules applicable to credit card accounts, financial institutions would be well advised to leverage their existing compliance management system’s strengths while adapting MLA-specific policies and procedures, employee training, internal controls, and management information systems to comply with the amended MLA regulation.
Specific issues and questions should be raised with your primary regulator.
Endnotes
1 U.S. Department of Defense. Report on Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents. August 9, 2006,http://download.militaryonesource.mil/12038/MOS/Reports/ReportonPredatoryLendingPractices.pdf.
2 This section is intended to highlight certain key provisions of the MLA and its implementing regulation; however, it is not intended to provide an exhaustive summary.
3 10 U.S.C. §987
4 The MLA implementing regulation is found at 32 C.F.R. part 232.
5 80 Fed. Reg. 43560(July 22, 2015); the DOD has also published an interpretive rule providing additional background information regarding compliance with the amended regulation. 81 Fed. Reg. 58840(August 26, 2016).
6 79 Fed. Reg. 58602, 58610 (September 29, 2014); see also 15 U.S.C. §1601 et seq. (TILA) and 12 C.F.R. part 1026 (Regulation Z).
7 32 C.F.R. §232.3(f)(2)
8 However, the DOD has indicated that “an overdraft service typically would not be covered as consumer credit because Regulation Z excludes from ‘finance charge’ any charge imposed by a creditor for credit extended to pay an item that overdraws an asset account and for which the borrower pays any fee or charge, unless the payment of such an item and the imposition of the fee or charge were previously agreed upon in writing.” (Emphasis added.) 80 Fed. Reg. 43560, 43580 (July 22, 2015). See also the first interpretative question and answer at 81 Fed. Reg. 58840 (August 26, 2016).
9 32 C.F.R. §232.4(c)
10 32 C.F.R. §232.5(b)
11 32 C.F.R. §232.6
12 32 C.F.R. §232.13
13 32 C.F.R. §232.3(f)(1)
14 32 C.F.R. §232.3(g)
15 32 C.F.R. §232.3(i). The term creditor also includes an assignee of a person engaged in the business of extending consumer credit with respect to any consumer credit extended.
16 32 C.F.R. §232.5(b)
17 The MAPR is calculated in accordance with 32 C.F.R. §232.4(c).
18 32 C.F.R. §232.4(b)
19 32 C.F.R. §232.4(c)(2)(i)
20 Sections 1026.14(c) and (d) of Regulation Z provide for the methods of computing the APR under several scenarios, such as (1) when the finance charge is determined solely by applying one or more periodic rates; (2) when the finance charge during a billing cycle is or includes a fixed or other charge that is not due to application of a periodic rate, other than a charge with respect to a specific transaction; and (3) when the finance charge during a billing cycle is or includes a charge relating to a specific transaction during the billing cycle. 12 C.F.R. §1026.14.
21 32 C.F.R. §232.4(c)(2)(ii)
22 32 C.F.R. §232.4(d). The exclusion for bona fide fees does not apply to charges based on application of a periodic rate, credit insurance premiums, or to fees for credit-related ancillary products.
23 32 C.F.R. §232.4(d). The DOD has indicated: “The ‘reasonable’ condition for a bona fide fee should be applied flexibly so that, in general, creditors may continue to offer a wide range of credit card products that carry reasonable costs expressly tied to bona fide, specific products or services and which vary depending upon the servicemember’s own choices regarding the use of the card.” 80 Fed. Reg. 43560, 43573.
24 32 C.F.R. §232.4(d)(3)(iii)
25 32 C.F.R. §232.8
26 32 C.F.R. §232.6. The DOD noted that “[A] creditor who is an assignee is not required to provide [the statement of the MAPR and the clear description of the payment obligation] … [h]owever, the disclosures required by Regulation Z … would remain subject to Regulation Z. …” 80 Fed. Reg. 43588 (July 22, 2015). Additionally, the DOD has explained that: “The MLA regulation’s general timing requirement does not override more specific disclosure timing provisions in Regulation Z. The requirement in § 232.6(a) that any disclosure required by Regulation Z be provided only in accordance with the requirements of Regulation Z does not amount to a requirement that MLA-specific disclosures be separately provided to borrowers in advance of TILA disclosures. Thus, the disclosures required in § 232.6(a) may be provided at the time prescribed in Regulation Z.”
27 32 C.F.R. §232.6(d)(1)
28 32 C.F.R. §232.6(d)(2)
29 32 C.F.R. §232.6(d)(2) The DOD has explained: “Oral disclosures provided through a toll-free telephone system need only be available under § 232.6(d)(2) (ii)(B) for a duration of time reasonably necessary to allow a covered borrower to contact the creditor for the purpose of listening to the disclosure.” 81 Fed. Reg. 58840, 58844 (August 26, 2016).
30 32 C.F.R. §232.10
31 32 C.F.R. §232.9(c)
32 32 C.F.R. §232.9(e)(1)‐(3)
33 32 C.F.R. §232.9(e)(4)
34 50 U.S.C. §4041
35 50 U.S.C. §3937
36 50 U.S.C. §3937(b)
37 50 U.S.C. §3937(a)(3)
38 50 U.S.C. §3953
39 50 U.S.C. §3953, 50 U.S. C. §3953(b)
40 50 U.S. C. §3953(b). See also 50 U.S.C. §3954 (regarding settlement of stayed cases related to personal property (either under a mortgage or purchase contract)).
41 50 U.S.C. §3952
42 50 U.S.C. §3952, 50 U.S.C. §3952(c)
43 50 U.S.C. §3955
44 See 50 U.S.C. §3955. Creditors should also be aware of SCRA provisions regarding tax obligations, including 50 U.S.C. §§3991, 4001(d), and 4021. 45 50 U.S.C. §3957
46 50 U.S.C. §3951
47 50 U.S.C. §3919
48 DOD Financial Management Regulation, Volume 7A, Chapter 42, Paragraph 420201
49 DOD Financial Management Regulation, Volume 7A, Chapter 42, Paragraph 420201, Paragraph 420202
50 32 CFR §232.8(g)
51 See In the Matter of U.S. Bank National Association, Consent Order, 2013‐ CFPB‐0003 (June 26, 2013) and In the Matter of Dealers’ Financial Services, LLC, Consent Order, 2013‐CFPB‐0004 (June 25, 2013) (CFPB alleged that U.S. Bank and Dealers Financial partnered to require servicemembers to repay subprime automobile loans by allotment and, among other things, failed to disclose fees, failed to properly disclose payment schedules, and misrepresented charges for add-on products); Consumer Financial Protection Bureau et al. v. Freedom Stores, Inc. et al., Civ. Action No. 2:14-cv-643-AWA-TEM (E.D. Va.), Complaint (December 18, 2014) and Final Order (January 9, 2015) (CFPB, with the attorneys general of North Carolina and Virginia, alleged that a retailer and associated finance companies unlawfully double-dipped by taking payments via both a servicemember’s allotment and bank or other required back-up account in the same month, and otherwise engaged in unfair or abusive debt collection practices, such as including nonnegotiable clauses in loan agreements mandating that disputes be resolved in a distant venue inconvenient for servicemembers); and In the Matter of Fort Knox National Company and Military Assistance Co., LLC, Consent Order, 2015-CFPB-0008 (April 20, 2015) (CFPB alleged that military allotment processors failed to disclose fee amounts for residual balances in allotment accounts and the fact that fees were charged).
52 Neither the MLA nor SCRA requires any specific method for confirming the military service status of an individual.
53 See Military.com, “A Financial Guide to PCS Moves,” https://www.military.com/money/pcs-dity-move/easing-stress-of-moving.html.
54 See CA 12-8, “Mortgage Servicing Practices Concerning Military Homeowners with Permanent Change of Station Orders” (June 21, 2012), https://www. federalreserve.gov/supervisionreg/caletters/caltr1208.htm.
