Pub. 7 2017-2018 Issue 4

14 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S amended contractual liability, and prohibition on creditor self-help actions like foreclosure and repossession without court approval. MLA Three areas of the MLA for banks to note: (1) Certain oral and written (yes – both) disclosures are to be made before extending credit; (2) Prohibitions are placed onmandatory ar- bitration clauses, prepayment penalties, andwaivers of certain legal rights, including those under the SCRA; and (3) Rates are capped at 36% on all covered loans, with a distinct rate calculation inclusive of “add on” products like credit insurance and ancillary fees. Coverage is limited to servicemembers on active duty and dependents. Originally MLA applicability was limited, but the 2015 amendments expanded coverage to most Truth in Lending (TILA) loans. Thus, most consumer credit subject to a finance charges or with installments is now included. Credit cards and student loans are the big additions, while mortgages, most auto loans, and overdraft protection remain excluded. The final piece of the amendments became effective in October. Creditors are required to determine if a borrower is cov- ered by the Act, but safe harbor is available if verification is obtained through the MLA online database or consumer credit report containing military status. Violations can re- sult in enforcement actions, civil penalties, private suits, and criminal liability. UDAAP Definitions for unfair, deceptive, and abusive are found in the regulation itself and the CFPB has provided additional guidance and examples in their manual online. Actual in- stances of actions the Bureau claimed were violations include threatening to call a commanding officer, misrepresenting the creditor’s intended actions with respect to legal remedies, hidden fees, and deceptive advertising.   continued from page 13 State Laws Some states have enacted stronger protections than the federal regulations. These are not preempted by federal reg- ulations so long as they provide more protection, not less. For example, in California reservemembers called into active duty are entitled to defer payments on a whole host of loan types. Other states have statutes making a violation of the MLA a violation of state law, posing the possibility of additional liability for violations. Evaluate Evaluation of the bank’s existing level of compliance is critical. Military lending is a pervasive compliance risk, reaching from the Board of Directors to the teller. Key areas to consider include eligibility management, loan servicing, vendor oversight, SCRA/MLA benefit allowances and denials, and product development. Implement Though designing compliance structure is always bank-specific, some general considerations are useful in the military lending arena. Bank software may not be adaptable to the distinct nature of military lending requirements, so it might be necessary to implement a manual system to tackle factors like eligibility, rate compliance and review, and en- forcement action compliance. The status of an individual customer can change quickly, either in to or out of coverage under the regulations. There- fore, it is incumbent on the bank to incorporate an effective monitoring system. The grave impact of personnel training and education cannot be overstated, with myriad enforce- ment actions citing deficiencies therein. Interdepartmental communication, such as between compliance and product development, is another essential consideration in the im- plementation effort. Finally, managing third party vendor compliance can make or break the enterprise-wide military lending management effort, a point emphasized in the same speech by the OCC official mentioned earlier. Bank software may not be adaptable to the distinct nature of military lending requirements, so it might be necessary to implement a manual system to tackle factors like eligibility, rate compliance and review, and enforcement action compliance.