Compliance Blog

Written by Elizabeth M. Young LaBerge, Regulatory Compliance Counsel

Can you believe the MLA Final Rule has been with us for nearly ten months? If you've ever seen a video of the chemical reaction, The Pharaoh's Serpent,= you might recognize it as an apt metaphor from just a few regulations comes what feels like an increasingly complex, ugly, man-eat-squid-sized set of questions and concerns.

 

In order to help you cope with the seemingly ever-expanding and multiplying tentacles of the MLA's new requirements, NAFCU has published its Complete MLA Compliance Guide. It is a member-only compliance resource compiling the MLA-related issues, questions and available guidance that we have encountered over the last ten months. This guide can be found on our MLA Compliance landing page. We hope our members will find it useful.

In the meantime, the tentacles just keep coming.

We've had multiple members asking versions of the same question:

Can oral disclosures provided via the 1-800 number be made by a prerecorded message?

In typical compliance fashion, the answer is:

It depends.

Oral disclosures are required in addition to, not instead of, written disclosures. The rule allows a toll-free telephone number to be provided to the consumer in lieu of giving oral disclosures in person. See, 32 C.F.R. 232.6(d)(2)

Regarding what must be said, section 232.6(d)(2) states that the oral disclosures must include the information required by paragraphs (a)(1) and (a)(3) of this section. These two cross-referenced sections are below:

(1) A statement of the MAPR applicable to the extension of consumer credit;

(2) Any disclosure required by Regulation Z, which shall be provided only in accordance with the requirements of Regulation Z that apply to that disclosure; and

(3) A clear description of the payment obligation of the covered borrower, as applicable. A payment schedule (in the case of closed-end credit) or account-opening disclosure (in the case of open-end credit) provided pursuant to paragraph (a)(2) of this section satisfies this requirement (Emphasis added.) See, 32 C.F.R. 232.6(a)(1)-(3).

The first requirement, the statement of the MAPR, does not require a numeric disclosure of the MAPR applicable to the specific extension of credit to the member. Instead, it requires a description of the charges the creditor may impose, in accordance with this part and subject to the terms and conditions of the agreement, relating to the consumer credit to calculate the MAPR, and can be satisfied by using the Model MAPR Statement found in section 232.6(c)(3). Because model language can be used to satisfy this requirement, prerecording a compliant message may be possible.

The second requirement, the clear description of the payment obligation, is less forgiving. The rule states that a payment schedule can be used in the case of closed-end credit, but the MLA rule does not specify what exactly must be included. A payment schedule is a specific line item in Regulation Z's closed-end disclosures, so it is possible that the information from that disclosure may satisfy the requirement:

(g) Payment schedule. Other than for a transaction that is subject to paragraph (s) of this section, the number, amounts, and timing of payments scheduled to repay the obligation.

See, 12 C.F.R. 1026.18(g). This information includes the number and amount of payments transaction-specific information which could vary significantly from borrower to borrower, making prerecorded disclosures difficult.

Regarding open-end credit, the second requirement is much wider than a payment schedule; it's an account-opening disclosure. Again, looking a Regulation Z, the requirements of an account-opening disclosure for open-end credit can be found at section 1026.6. These are numerous and highly transaction-specific.

So could a recording be used to provide the oral disclosures? Nothing in the rule explicitly prohibits it. Ultimately, a credit union's breadth of offerings might make prerecording these disclosures impractical. A credit union which offers covered-loans to covered borrowers would need to be able to provide a lot of transaction-specific information in a manner which provides complete and accurate disclosures to the covered member making the phone call.

Even if a credit union offers only a few covered loans with the same disclosed terms to all covered members, what if the credit union makes multiple covered loans to the same covered member in a short time-frame?

Watch out for the tentacles.

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DoD Military Lending Act Interpretive Guidance Released

This blog was written before DoD issued its interpretative guidance on August 26, 2016. The interpretative guidance does change the analysis in the above blog post. For an update discussion of this question in light of the interpretive guidance, see August 31st's blog post, DoD's Interpretive Guidance on MLA: Part II Oral Disclosures Can Be Generic. The interpretative guidance can be found in the Federal Register. NAFCU's Regulatory Compliance team will update the association's MLA Compliance Guide in advance of the effective date (October 3, 2016) to account for the new guidance.