MLA Q&As – Highlights from NCUA’s Recent Webcast
Written by Brandy Bruyere, Director of Regulatory Compliance
With the initial deadline for Military Lending Act compliance only a few months away, credit unions continue to have many questions about some of the rule's ambiguities. A couple of weeks ago, NCUA's Office of Consumer Protection held a webcast giving an overview of the rule, with a question and answer period following. Many questions related to what kinds of things might be considered credit-related ancillary products that must be included in the MAPR calculation. While we've blogged about this before, NCUA's OCP is the agency's liaison with the DoD on the MLA so we wanted to share some of these insights.
On various products to include in the MAPR. Some viewers asked about products like gap insurance and mechanical repair coverage, which NCUA said are included in the MAPR if the loan is a covered loan (i.e. a vehicle refinance). NCUA also stated that the definition of finance charge in Regulation Z generally applies, except in cases where the MLA explicitly overrides certain exclusions - for example, credit life insurance. Here's a few excerpts from pages 13 and 15 of the transcript:
Gail Laster: Okay. And now, with regard to what else goes into the MAPR calculation, will the charges for gap coverage, vehicle warranty, and payment protection be included in the MAPR calculation?
Grace Lee: Under Section 232.4(c), charges for all credit protection products, such as gap coverage and payment protection, are included in the MAPR as applicable to the extension of credit. In addition, the same section states that the cost for ancillary products, such as a warranty sold in connection with the credit transactions must also be included in the MAPR.
Gail Laster: Okay. Now, here's other types of products. Credit union writes that, We offer credit life, disability, and unemployment insurance on our loans. On the application for the insurance, the estimated total fees for options chosen is listed. We bill the first premium monthly payments starting at month end after confirmation, and this can be canceled at any time. No payments are made prior to confirmation. So the question is, Do we include the entire estimated total fees for options chosen in the MAPR calculation?
Grace Lee: The MLA regulation requires your credit union to include in the MAPR all such charges imposed as applicable to the extension of credit. The regulation directs the credit union to use the Reg Z methods for computing APR when calculating the MAPR. Therefore, you should comply with the Regulation Z APR methodology regardless of whether the credit is open-end or closed-end.
Gail Laster: Thank you. Next question is about auto secured loans. A credit union writes that, With regard to auto secured loans, we offer a single payment mechanical repair coverage, otherwise known as MRC product, that covers repairs to the auto that secures the loan in the event that the warranty has expired. So, the question is, Would the MRC payment need to be included in the MAPR calculation since it is related to the auto and used as collateral?
Grace Lee: If the loan is for the purchase of a motor vehicle and is secured by the vehicle, the MLA does not apply. For non-purchase loans secured by a motor vehicle, the creditor must include the cost of all ancillary products sold in connection with the credit transaction, pursuant to Section 232.4(c)(1)(ii) of the regulation.
Gail Laster: Okay. Now, we have a question about finance charges. The MAPR calculation as defined by 32 CFR Section 232.4 is to include finance charges plus the items in Section 232.4(c)(i)(iii), it is unclear whether comprehensive and collision insurance or [forced place] insurance that is not a state required insurance but rather a financial institution imposed insurance should be considered an add-on product or would the Regulation Z finance charge exceptions apply?
Grace Lee: The MLA regulation requires creditors to include in the MAPR any ancillary product applicable to the extension of credit. Creditors must also include all finance charges. For MLA purposes, finance charge has the same meaning as finance charge under Regulation Z. Therefore if not otherwise specified in the MLA regulation, you should refer to the provisions of Regulation Z and its official interpretations to determine if you must include in the MAPR a non-voluntary charge such as this.
(emphasis added)
NAFCU previously blogged on this insurance issue here, and NCUA's webcast does seem to clear that up a bit. We've also blogged on credit related ancillary products and MAPR calculations. NAFCU members can also download our MLA Compliance Guide and related resources here. You can download the NCUA webcast transcript using this link, NCUA MLA Webcast Transcript, and watch the archived webcast here.
***
Tomorrow's NAFCU Compliance Webcast Gaining Executive Buy-In to Build a Sustainable ERM Program
Tuesday, July 19 | 2:00 p.m. - 3:30 p.m.
Many credit union Enterprise Risk Management programs struggle because their program managers try to do too much too fast focusing on academic concepts to the detriment of meaningful results. Attend this webcast to gain perspective on how to build a successful, sustainable ERM program.
***
Poor Lemmy. Like any toddler, Nolan has tantrums this one because my husband wouldn't let him have a glass bowl of cereal. Lemmy tries to take it all in stride though and be a passive observer.
