Nearing 40 years of experience in the Credit Union Industry, Oak Tree is a leading provider for lending documents and forms for Credit Unions. We provide all types of forms (all types of formats), data linking services, training, compliance support, legal opinion letters, preprinted brochures and documents, as well as web-based and mobile forms. Marketing Services for credit unions also available.
TRID & What It Means for Your Forms at Your Credit Union
In a commentary article posted on Credit Union Times our CEO, Richard Gallagher discusses TRID and what it means for your forms. For Credit Unions, TRID requires not only adjusting model forms but also includes changes to computer software. Picking the right business partners to satisfy the TRID disclosure requirements is more critical than ever, and a reliable document provider is every bit as important as finding a qualified loan processor.
What do you get when you attempt to abbreviate “Truth-in-Lending Act,” “Real Estate Settlement Procedures Act” and “Integrated Disclosures?” Well, if you are the CFPB, you get TRID, an acronym for two consolidated consumer real estate loan disclosure forms that represent many years and countless hours of research and development. The TRID forms consolidate two separate loan disclosures that had been required for decades by two different federal consumer protection laws and regulations recombining them into two different forms; one to be provided at the time of application and the other, at the time a closed-end consumer real estate loan is closed. For those wanting to dig a little deeper, let’s break this down.
On Aug. 11, 2017, the CFPB published a Final Rule in the Federal Register to formalize guidance and to provide greater clarity and certainty regarding specific mortgage disclosure provisions implemented by Regulation Z (2017 TILA-RESPA Rule). Although the Final Rule became effective on Oct. 10, 2017, 60 days after publication, compliance is not mandatory until Oct. 1, 2018. Confused? Aren’t the TRID disclosures already required? Let’s back up and review.
Last year’s revisions to the Military Lending Act (MLA) regulations have generated quite a bit of buzz in recent days. You might be wondering how these changes will affect your forms, and what action you need to take. The good news is that if you are currently using Oak Tree forms for the types of credit that will be covered by the MLA, then your current forms are compliant, despite the revisions made to the MLA. It is important to be aware of the MLA changes & their effect on credit unions if you are running a credit union.
When the United States Department of Defense (DoD) revised their MLA regulations, they expanded the protections provided to active-duty service members and their families under the Military Lending Act (MLA). For the first time, loan products of the type normally offered by credit unions and other depository institutions are covered by the MLA regulations. While the new requirements took effect October 1, 2015, the mandatory compliance date is October 3, 2016 (and not until October 3, 2017 – and possibly later – for credit card accounts).
What is the MLA?
The current MLA regulations were issued in 2007 and were designed to protect active-duty members and their families (“Covered Borrowers”) from the most egregious forms of predatory lending. Whether a person is a Covered Borrower is determined by a service member’s active-duty military status. The MLA protections presently apply only to credit extended to service members and their immediate family members while the service member is on active duty and focus exclusively on: (i) payday loans of $2,000 or less with terms of 91 days or less; (ii) vehicle title loans (non-purchase money loans with terms of 181 days or less secured by a motor vehicle’s title); and (iii) tax refund anticipation loans. These loans are referred to as “Consumer Credit” transactions under current MLA regulations.
The MLA regulations limit the amount that a lender may charge a Covered Borrower for a Consumer Credit transaction. This limitation comes in the form of the unique “Military Annual Percentage Rate” (MAPR). Creditors are prohibited from charging an MAPR that exceeds thirty-six percent (36.0%).
When current regulations proved less than effective at curbing lending abuses, the DoD changed its strategy by expanding the scope of what constitutes a Consumer Credit transaction. Instead of targeting specific loan products, the revised MLA regulations now specify that all consumer loans subject to Regulation Z (both closed-end and open-end) would be covered, with limited exceptions granted for certain types of “mainstream” consumer loans. Under the new rules, only the following credit transactions are not subject to the MLA regulations (and thus, are not “Consumer Credit” transactions for purposes of the amended MLA regulations):
Dwelling-secured loans, including loans to finance the purchase or initial construction of the dwelling, refinance transactions, home equity loans, home equity lines of credit, and reverse mortgages;
Loans to finance the purchase of a motor vehicle when the loan is secured by that vehicle; and
Loans to finance the purchase of other types of personal property when the loan is secured by that property.
For most types of Consumer Credit, only those transactions or accounts consummated or established on and after October 3, 2016, will be subject to the new requirements. For open-end (not home-secured) credit card accounts, only those accounts established on or after October 3, 2017, will have to comply with the MLA. The current requirements will remain in effect for affected closed-end credit products until October 3, 2016.
Under the new MLA regulations, a creditor is not required to disclose the MAPR as a numerical value (which is a requirement under the 2007 regulations), but is required to provide “a statement of the MAPR applicable to the extension of credit” (a text explanation of the MAPR rules). A Model Statement that may be provided to satisfy the MAPR disclosure requirements is provided in the new regulations and is currently available through Oak Tree. This disclosure must be provided both orally and in writing.
The 36.00% MAPR limitation remains, but will soon apply to both open-end credit and closed-end credit. For open-end credit accounts, the MAPR limitations are imposed on each billing cycle. Creditors may not impose fees and charges during a billing cycle if those fees and charges would result in the MAPR for that billing cycle exceeding 36.00%.
The new regulations contain essentially the same limitations on loan practices and the same administrative penalties that are provided in the 2007 regulations, but, because of Congressional amendments to the MLA in 2013, including civil liability provisions for the first time. Violations of the MLA and DoD regulations will now subject creditors to civil liability for actual damages (not less than $500 per violation), punitive damages, and equitable relief, among other provisions.
Credit Union Forms Requirements
Because of the significant civil liability provisions, credit unions must familiarize themselves with the requirements of the MLA and DoD regulations as revised, to ensure compliance by the effective dates. The MAPR limitations must be taken into account when credit is furnished to Covered Borrowers in order to avoid this potentially costly civil liability. It is strongly recommended that an MLA due diligence process be incorporated into application procedures in order to take advantage of certain safe harbor provisions contained in the new regulations.
How Does This Impact Your Forms?
Here is where the good news comes in. Although the credit union’s consumer lending operations are clearly affected by the new requirements, your forms remain compliant. Again, Oak Tree’s counsel has advised that Oak Tree’s current forms will not require revisions. The reason for this? Chat with us to find out why.
(note: this is an older blog entry and has been edited since originally posted.)
New Military Lending Act Regulations Recent Changes Regarding Military Lending At Oak Tree Business Systems, Inc., we pride ourselves in maintaining forms that are up to date and compliant across all federal and state guidelines. Well, it is time for us to “up the ante” with this latest regulatory change. Protections have been expanded for active-duty service members and their families according to the revised regulations of the Military Lending Act. Now, loan products offered by credit unions and other depository institutions are covered by these regulations. The new requirements will take effect on October 1 of this year. The mandatory compliance date is October 3, 2016 (and not until October 3 of the following year, and possibly later for credit card accounts).
Why Did The Regulations Change?
The reason for the regulatory change has to do with why the MLA was enacted, to begin with. In 2006, Congress discovered that most active-duty members often looked to subprime lending sources to help them get relief during a financial crisis. Even though the loan provided short-term relief, the high-interest costs associated with carrying the new loan would throw these families into a cycle of unsustainable debt. This added to the stress that service members already feel in general, and this added stress would trickle down to their spouses and children. Therefore, the MLA was established in 2007 to protect service members from predatory lending. The act was specific in that it only applies to active-duty members, and focuses on the following:
Payday loans of under $2000 with terms of 91 days or fewer
Non-purchase money loans with terms of 181 days or fewer secured by a motor vehicle title
Tax refund anticipation loans
The MLA protects the consumer by limiting the interest amount that an institution may charge for these services. This limitation comes in the form of what is known as a Military Annual Percentage Rate, or MAPR. Creditors may not charge more than 36% MAPR. This differs from APR significantly, because finance charges normally excluded under Regulation Z are included under MAPR. The New Changes The new regulation changes extend to all consumer loans, not just short-term payday or tax refund anticipation loans. Under the new rules, the only types of transactions not subject to MLA regulations are:
Dwelling secured loans, including loans to finance the purchase or initial construction of the dwelling, refinance transactions, home equity loans, home equity lines of credit, and first mortgages
Loans to finance the purchase of a motor vehicle when the loan is secured by the vehicle
Loans to finance the purchase of other types of personal property when the loan is secured by the property
So, What Does This Mean?
Essentially, it means that all of your forms must be updated to reflect the new changes, and kept up to date as each phase-in level date is established. You must be familiar with the new regulations to make sure that they are reflected in all of your applicable lending forms. Oak Tree Business Systems, Inc. will do just that. We will make sure that all of your lending forms are correct, include appropriate verbiage, and accurate, up-to-date MAPR so they are in compliance. Oak Tree is a leader in the industry with a proven track record of producing a compliant product every time. Give us a call if you have any questions regarding your forms, or if you are wondering how the new MLA regulations will affect your institution.
(note: this is an older blog entry and has been edited since originally posted.)
