Credit Cards Now Covered Under Military Lending Act
October 3, 2017
The final provision of the Military Lending Act goes into effect this week. What does this mean for credit unions? The same restrictions and requirements applied to other covered loans now apply to credit cards — MAPR limitation, required disclosures, contractual considerations, and determination of covered borrower. However, credit cards have some additional considerations credit unions need to be aware of. Specifically, the determination of whether a bona fide fee is reasonable will impact credit card accounts for all covered borrowers.
Under the 32 CFR 232.4(d)(3)(ii) , credit unions can obtain a safe harbor regarding the reasonableness of a bona fide fee “if the amount of the fee is less than or equal to an average amount of a fee for the same or a substantially similar product or service charged by 5 or more creditors each of whose U.S. credit cards in force is at least $3 billion in an outstanding balance (or at least $3 billion in loans on U.S. credit card accounts initially extended by the creditor) at any time during the 3-year period preceding the time such average is computed.”
The good news is that CUNA just released a tool (a resource for members) aimed at helping credit unions easily obtain this safe harbor. Using the requirements listed in 232.4(d)(3)(ii), CUNA’s tool helps credit unions identify if their bona fide fees are reasonable under the safe harbor. This has been a pain point for credit unions as the information was not compiled in one location which meant the safe harbor determination was a complicated, lengthy process. With CUNA’s new tool, credit unions should have an easier time determining if their bona fide fees are reasonable under the safe harbor.
It is important to note that just because a fee is bona fide, it isn’t automatically excluded from the MAPR. The fee must be bona fide and reasonable. If a bona fide fee is unreasonable, then it must be included in the MAPR calculations for the billing cycle it is charged in. The rule goes on to state that if a reasonable and unreasonable bona fide fee are charged in the same billing cycle—the reasonable fee would lose its exclusion under the rule and must also be calculated as part of the MAPR. For example, if a credit union charges a reasonable cash advance fee on a credit card account, the fee would not be included in the MAPR calculations. However, if the credit union charges a reasonable cash advance fee and an unreasonable foreign transaction fee, then both fees would be included in the MAPR calculations for that billing cycle.
It is also important to remember that the rule states that a fee can be considered reasonable, even if it is not a fee that is charged by another creditor (under the safe harbor) or if the fee is more than what is charged by other creditors. However, credit unions should carefully review their bona fide fees to determine if the fee falls under the safe harbor or not. If the fee doesn’t fall under the safe harbor, credit unions should take steps to determine if the fee would otherwise be considered reasonable. These steps could include comparing the fee to other creditors that do not fall under the safe harbor, discussing the fees with legal counsel, and ensuring that the fees correspond to their benefits (for example, if the fee is higher than what is charged by other creditors, but the rewards are greater or the credit limit is significantly higher).
Question of the Week
If we run our calculations during the statement period and realize we are charging a covered borrower over 36 percent MAPR—can we waive fees until we are below the 36 percent cap?
Yes. According to the CFPB’s exam manual, a creditor can waive fees or periodic charges (either whole or in part) in order to comply with the 36 percent rate cap.
National Credit Union Administration (NCUA)
The NCUA released its Board Action Bulletin from its September board meeting. The bulletin details the closure of the Temporary Credit Union Stabilization Fund along with a planned distribution in 2018, and a proposed change to the NCUA’s advertising rule.
Consumer Financial Protection Bureau (CFPB)
The CFPB announced the release of its first national survey on the financial wellbeing of U.S. consumer. The report shows that over 40% of adults struggle to make ends meet financially.
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Federal Reserve Board (FRB)
The FRB, jointly with the OCC and FDIC, issued a proposed rule to reduce the regulatory burden by simplifying requirements in the agencies’ regulatory capital rule.
The FRB delivered a report to Congress detailing the availability of credit to small businesses in the U.S. The report indicates that credit conditions for small businesses have largely been favorable.
Federal Financial Institutions Examination Council (FFIEC)
The FFIEC announced the release of the 2016 HMDA data. The data shows that the number of institutions reporting declined in 2016, but total loans increased.
Federal Housing Finance Agency (FHFA)
The FHFA announced a request for input on its strategic plan for fiscal years 2018-2022.
Office of Foreign Assets Control (OFAC)
OFAC has updated the SDN list as of September 26, 2017. The last update prior to this was September 19, 2017.
Questions? Contact the Compliance Hotline: 1.800.546.4465; email@example.com.