Compliance Town Hall Military Lending Act …Included payday loans, deposit advance products, auto...

Compliance Town Hall

Military Lending Act Amendments

Eleanor Hopkins, NCCO

Product Manager, Compliance

October 25th & 27th , 2016

2This presentation does not provide legal advice.

Enhancement dates contained in this document

are provided as estimates only and can be

changed at any time at the sole discretion of Jack

Henry & Associates, Inc.


Speaker Information

Eleanor Hopkins, NCCO

Episys Product Manager, Compliance

Symitar, a Jack Henry & Associates Company

Tel: (619) 542 - 6839

E-mail: [email protected]


Agenda

Military Lending Act

Background

Enhancements

Resources

Regulatory Changes

Product Announcements

Resources

Questions

Military Lending Act- Background


Military Lending Act of 2006

“Predatory lending undermines military readiness, harms

the morale of troops and their families, and adds to the cost

of fielding an all volunteer fighting force.” - Department of

Defense (DoD)

Original Rule: caps annual interest rates for consumer

credit to military borrowers at 36% including all fees and

charges, credit insurance premiums and other ancillary

charges.

Included payday loans, deposit advance products, auto

title and installment loans.


Military Lending Act Expansion

DOD study revealed that additional protections needed

for active duty service members.

Initial scope was not broad enough.

The DoD considers financial health a key part of service

members overall readiness.

Active duty military can loose their security clearances if

they accumulate large amounts of debt.

"With this action, the department takes an important stand

against companies that can prey on our men and women

in uniform,” – Deputy Defense Secretary, Bob Work



Maximum Interest Rate: Military APR (MAPR) 36% Cap

New Loan Disclosures: Orally & In Writing

Statement of the MAPR applicable to credit

Any disclosure required under Reg Z

Description of payment obligation

Prohibited Terms: arbitration, waiving of rights under

State or Federal law, prepayment penalties

Voided contracts: credit agreements, notes, contracts not

in compliance with MLA are considered void



Expands the 36% Military APR (MAPR) cap to wider range

of credit products, including closed-end installment loans,

small dollar loans (NCUA PALs), overdraft lines of credit,

and credit cards.

Excludes: residential mortgages, motor vehicle loans secured

by the vehicle being purchased, or other loan secured by

property being purchased.

Expands fees included in the MAPR calculation, including:

fees for credit-related ancillary products, finance charges

and certain application/participation fees.

For credit cards – excludes “reasonable” and “bonafide” fees


Military Lending Act Timeline

Part Description Effective Solution

Open-End Calculate 36% threshold

exceeded at end of billing

cycle. Reverse fees or lower

insterest as necessary.

10/3/16 • Rate Cap for Military

APR (R 2016.00)

• Rate Cap for Military

APR (Part 3) (R

2017.00)

• ELA Update

Closed-End Calculate 36% threshold

exceeded at loan

consummation. Reverse fees

or lower interest as necessary.

10/3/16 • Above +

• Dfct 1117650 Fix

(9/26/16)

Covered

Borrower

Determine borrower’s status via

1. MLA database

2. Consumer Reporting

Agency

10/3/16 • DoD MLA Database

• Directly through CRA

• Or Credit Retrieval -

Military Lending Act

of 2016 (Feb SP)

Credit Cards Open – End (above) +

bona-fide & reasonable fees 10/3/17 • Credit Card MAPR

Cap (R 2017.00)


Military Lending Act Timeline

Dec

R 2016.01Nov

Oct

MLA effective

• Dfct1117650 fix

• ELA update

Sept

• Rate Cap for Military APR

June

R 2016.00

Dec

R 2017.01

Oct

MLA Credit Cards

effective

June

R 2017.00Feb

2016

2017

• Rate Cap for Military APR –Part 3

• Credit Card MAPR CAP

• ELA Update

Credit

Retrieval -

Military

Lending Act of

2016

Military Lending Act- Enhancements


MLA Enhancement

Rate Cap for Military APR

Enhances Episys to support the 36% rate cap

expansion under the DOD amendment to the

Military Lending Act.

Release: 2016.00

Resources: Enhancement Preview doc, Client Guide

For Clients > Release Information > Episys Releases >

2016.00 Projects


MLA Enhancement


This project lets you:

Track status of active duty members

Track MLA protected loans

Create a report for loans within the MAPR cap or exceed

the MAPR cap

ID fees that took the loan close to or over 36%

Specify which fees to include in the MAPR calc

Supports new fee types

Includes insurance in the MAPR calc


MLA Enhancement


Limitations:

Does not automate active duty status validation (credit

reporting covered borrower status in a separate

enhancement)

Does not track how/when member validated

Does not prevent 36% cap from being exceeded

Application Record does not contain active duty status

fields (will be addressed in upcoming enhancement)


MLA Enhancement – Defect 1117650


Important Dates:

Defect discovered 8/25/2016

1st SLA sent: 9/7/2016

Fix delivered & 2nd SLA sent: 9/26/2016

Regulation effective: 10/3/2016




Defect: Original enhancement used the same calculation

for open-end and closed end loans. The Military APR

(MAPR) calculation for closed-end loans is different and

documented in Appendix J of Regulation Z.

Fix: Episys used Reg Z calculation for closed-end loans

in Loan Projections.

Specfiles updated to exclude Closed-End loans, still

work for Open-end:

RB.LOANCALCULATE.MAPR

RD.LOAN CALCULATE.MAPR




Limitations:

At this time the following Interest Types are not

supported:

(3) Daily Billed Interest I, (4) Daily Billed Interest II,

(5) Actual/360, (6) Daily Billed 360 and level principal

payment

These will be addressed in the Rate Cap for Military APR –

Part 3 enhancement

Note: interest types1 and 8 are for mortgage loans,

which are not covered under MLA


MLA Enhancement – Questions





1. What are the calculation methods used?

2. Why do the calculation results vary from CUNA’s

calculation?

3. For closed end loans, why is the calculation only at loan

consummation?

4. How does the calculation account for insurance?

5. How can I calculate MAPR before a loan is closed?




1. What are the calculation

methods used?


MLA Enhancement – Calculation Methods

Section 232.4 Terms of Consumer Credit Extended to Covered

Borrowers

3. Computing the MAPR

The final rule contains two provisions for computing the MAPR,[213]

both of which track the methods already established in Regulation Z.

First, for closed-end credit, the rule requires a creditor to follow “the

rules for calculating and disclosing the `Annual Percentage Rate

(APR)' for credit transactions under Regulation Z,” based on the

charges required for the MAPR, as set forth in § 232.4(c)(1). In

general, the requirements for calculating the APR for closed-end

credit under Regulation Z are found in § 1026.22(a)(1), and include

the explanations and instructions for computing the APR set forth in

appendix J to part 1026.

https://www.federalregister.gov/documents/2015/07/22/2015-17480/limitations-on-terms-of-consumer-credit-extended-to-service-members-and-dependents#footnote-213-p43583



Closed End Loans

Uses the Reg Z Appendix J General Equation:

Under MAPR, it accounts for:

Insurance calculated and applied for each payment

Variable payments

Interest only loans



Open End Loans

3. Computing the MAPR - continued

Second, for open-end credit, a creditor generally must calculate the

MAPR using the methods prescribed in § 1026.14(c)-(d) of

Regulation Z, which relates to the “effective annual percentage rate”

(“effective APR”).[214] Section 1026.14(c) of Regulation Z provides

for the methods of computing the annual percentage rate under

three scenarios: (1) When the finance charge is determined solely

by applying one or more periodic rates; (2) when the finance charge

includes a fixed charge that is not due to application of a periodic

rate, other than a charge with respect to a specific transaction; and

(3) when the finance charge includes a charge relating to a specific

transaction during the billing cycle.

https://www.federalregister.gov/documents/2015/07/22/2015-17480/limitations-on-terms-of-consumer-credit-extended-to-service-members-and-dependents#footnote-214-p43583


§ 1026.14 Determination of annual percentage rate.

d. Calculations where daily periodic rate applied. If the

provisions of paragraph (c)(1)(ii) or (c)(2) of this section

apply and all or a portion of the finance charge is

determined by the application of one or more daily

periodic rates, the annual percentage rate may be

determined either:

1.(1) By dividing the total finance charge by the average of

the daily balances and multiplying the quotient by the

number of billing cycles in a year; or

2.(2) By dividing the total finance charge by the sum of the

daily balances and multiplying the quotient by 365.


Open End Loans

http://www.consumerfinance.gov/eregulations/1026-14/2014-25503_20150801#1026-14-c-1-ii

http://www.consumerfinance.gov/eregulations/1026-14/2014-25503_20150801#1026-14-c-2

http://www.consumerfinance.gov/eregulations/1026-2/2014-25503_20150801#1026-2-a-21

http://www.consumerfinance.gov/eregulations/1026-2/2014-25503_20150801#1026-2-a-4



Open End Loans

Calculation. The specfiles calculates the Military APR as

interest due plus applicable fees paid for the period,

divided by the loan balance, then annualized.

Interest Due for Period + Fees + Insurance

ADBalance

Results annualized (e.g. if monthly x 12)




2. Why do the calculation

results vary from CUNA’s

calculation?


MLA Enhancement Results Different From CUNA?

When comparing the two calculators, there are a couple of

things you should consider.

1. Check your calculator, may be issues:

Mapr_Calculator_for_Excel (not CUNAs)

CUNA Inc (possible issues):

Closed end: http://www.dinkytown.net/test/990405/MAPRClosedLoan.html

Open end: http://www.dinkytown.net/test/990405/MAPROpenLoan.html

CUNA Mutual (results very close to Episys):

CUNA Proprietary calculation engine

http://www.dinkytown.net/test/990405/MAPRClosedLoan.html

http://www.dinkytown.net/test/990405/MAPROpenLoan.html


MLA Enhancement Results Different From CUNA?

2. Check your variables

Insurance tables must be the same in both

Payment, amortization, insurance distribution may be

different

For open-end loans, the regulation is not clear about

definition of balances, different interpretations

Episys uses Average Daily Balance




3. For closed end loans why

do you only do the calculation

once?


MLA Enhancement –

Closed End MAPR Frequency

How often and when are we supposed to calculate the

MAPR 36% cap?

Open End Loans

May not impose MAPR greater than 36% on any

billing cycle

Closed End Loans

May not impose MAPR greater than 36% on

closed end credit at consummation

– Even if you add ancillary products or fees after loan

consummation (e.g. gap insurance)


MLA Enhancement –

Closed End MAPR FrequencySection 232.4 Terms of Consumer Credit Extended to Covered Borrowers

1. Sections 232.4(a)-(c): In General

The Department has determined to modify § 232.4(c)(1)(ii), relative to that provision of the Proposed

Rule and § 232.3(h)(1)(iii) of the existing rule, to require a creditor to include in the MAPR “fees for

credit-related ancillary products sold in connection with and either at or before consummation of the

[consumer credit].” As the Department explained when issuing the Proposed Rule, when

§ 232.3(h)(1)(iii) was adopted in 2007, including in the MAPR only the “credit-related ancillary

products” sold “either at or before consummation of the credit transaction” was designed to be

consistent with the scope of consumer credit, which covers only a narrow band of closed-end credit

products.

However, nothing in the MLA necessarily limits the inclusion in the MAPR of these charges only to

those that are sold at the outset of the credit transaction. Particularly insofar as consumer credit now

encompasses open-end credit products, the Department has concluded that the MLA should be

interpreted to require a creditor to include in the MAPR the fee for any ancillary product “sold with any

extension of credit to a [covered borrower]” so long as that ancillary product is “associated with the

extension of credit” —which could arise at any time in an ongoing, open-end account for consumer

credit. Accordingly, the Department has determined to amend § 232.4(c)(1)(ii) so as to require the

inclusion in the MAPR of any fee for a credit-related ancillary product sold in connection with the credit

transaction for closed-end credit or (at any time in connection with) an account for open-end credit, so

long as the consumer was a covered borrower at the time the account was established.




4. How does the calculation

account for insurance?


MLA Enhancement –

Insurance Products

Both the closed and open end loan solution allow for your

credit union to include insurance as part of the MAPR

calculation regardless of how posted:

Teller Transactions

Posting Batch

CUNA.INS.POST

RB.MTGCREDITINS.POST.PREMIUM

Added to loan principal – or not (taken from share or paid

up front)




5. How can I calculate MAPR

before a loan is booked?


MLA Enhancement –

Calculating MAPR before loan booked

There are two ways you can calculate the MAPR before a

loan is in the consummation phase:

Enhanced Lending Application (ELA)

Open End: Calculate Military APR (MAPR) from LOANAPP

– Subjective results

Closed End: use Loan Projections

Calculate Military APR (MAPR) from LOANAPP specfile

Free use, subjective results

Loan Projections “Work Area”

Closed End loans only

Military Lending Act- Enhancements


MLA Enhancement

Enhanced Lending Application (ELA)

Clients using ELA or loan application processing can

check the rate cap is not exceeded before a new loan is

booked by:

Open end: PS.LOANAPP.CALCULATE.MAPR

Closed end: Use Loan Projections work area (defect fix)

jhaDownloads: additional documentation available

Pending Enhancements (R: 2017.00)

For closed end, ELA will pull data from application record,

instead of the loan record

ELA will allow you to call projections for closed end


MLA EnhancementCredit Retrieval – Military Lending Act of 2016

Updates Episys CRS to allow verification of MLA covered

borrower status of borrower.

Targeted Release: February 2017 SP

Challenges:

Credit bureau specifications delivered late (August)

Solution deliver did not align with Symitar release cycle

Introducing code out of cycle has an element of risk


MLA EnhancementCredit Retrieval – Military Lending Act of 2016

Your credit union has multiple options to validate the MLA

covered borrower status:

Check the MLA Database directly

https://www.dmdc.osd.mil/appj/mla/index.jsp

Check directly with your credit bureau.

Check via Episys. If you pay your bureau for the data to be

returned on every report pulled through Episys:

Experian: data can be pulled today

Transunion: data will return code 07051 = MLA

Status 01 = Match, Status M00 = No Match

Equifax: Pending Credit Retrieval – Military Lending Act of 2016

enhancement

https://www.dmdc.osd.mil/appj/mla/index.jsp


MLA Enhancement

Rate Cap for Military APR (Part 3)

Enhance Episys to support the 36% rate cap expansion for

open-end and closed-end loans under DoD amendments to

the Military Lending Act. Additional fields in the application

record and calculation update to include +1 to transaction

end date.

Targeted Release: 2017.00


MLA Enhancement

Rate Cap for Military APR (Part 3)Ensure consistent work flows for loan application process to support

newly required information.

Ensure that the Application Person record has the four new fields (Act.

Duty V Date; Act. Duty Start Date; Act Duty Sep Date; Act Duty).

Ensure the Application Record has the new Military APR Status field.

Ensure MAPR and Reg Z calculations are accurate for fees and

charges received at the beginning and end of a loan cycle.

Ensure that RD.LOAN.CALCULATE.MAPR and Reg Z calculates the

Interest from Statement Date +1 thru Transaction End Date.

Ensure the closed-end loan MAPR/APR calculations in the Loan

Projection Screen are accurate for 360 Actual and Variable Payment

Loans.

Provide the ability to call Projections calculation of MAPR from a

specfile.


MLA Enhancement

Credit Card MAPR

For Credit Cards, enhance Episys to support the 36% rate

cap expansion under DoD amendments to the Military

Lending Act.

Provides the ability to exclude or include fees that are

not “reasonable” and or “bonafide” in the MAPR

calculation for credit cards.

Target release: 2017.00

Military Lending Act- Resources


MLA Enhancement Symitar Resources

Resource Detail Where to find it?

Rate Cap for Military

APR

Client Guide

Set up and usage

instructions

For Clients > Products &

Services > Core Solution >

Episys > Release

Documentation > Release

2016.00 – What’s New

Rate Cap for Military

APR

Enhancement Preview

Detailed overview of

changes made

For Clients > Products &

Services > Core

Solution > Episys > 2016.00

Projects

PS.LOANAPP.CALCULA

TE.MAPR PowerOn

Marketplace

Documentation

Set up and usage

instructions for the

updated ELA solution

JHA Downloads -

PowerOn Marketplace

Town Hall Webinars July 2016

October 2016

Episys Now

https://pages.jackhenrym

ail.com/episys

https://pages.jackhenrymail.com/episys


MLA Industry Resources

Resource Detail Where to find it?

NCUA Regulatory Alert

No: 16-RA-04

Includes enclosure:

Complying with Recent

Changes to the Military

Lending Act Regulation

Web search:

“NO: 16-RA-04”

NCUA Webinar on MLA

Expansion

Answers challenging

questions on MLA from

credit unions

https://www.ncua.gov/newsroom

/Pages/videos.aspx

ABA Staff Analysis:

Military Lending Act Final

Regulation Updated May

2016

Community bank

perspective on the final

rule

http://www.aba.com/Compliance

/Documents/InitialStaffAnalysisA

ugust20162.pdf

Equifax Webinar:

Military Lending Act –

Let’s Be Ready

CRA perspective on the

rule, emphasis on

“covered borrower”

https://www.equifax.com/busine

ss/military-lending-act-mla-

covered-borrower-status

https://www.ncua.gov/newsroom/Pages/videos.aspx

Regulatory Changes


CFPB Amendments to the 2013 Mortgage

Servicing Rules

Introduces broad changes to the original 2013 Mortgage

Servicing Rules, including:

Reg X’s servicing: amends rules on force-placed insurance

notices, policies and procedures, early intervention, and

loss mitigation requirements.

Reg Z’s servicing: prompt crediting and periodic statement

requirements

Effective October 19th, 2017



Servicing Rules

Also addresses servicing requirements when a person is a

potential or confirmed successor in interest, is a debtor in

bankruptcy, or sends a cease communication request

under the Fair Debt Collection Practices Act

Effective April 19th, 2018



Servicing Rules

Impact to Episys: enhancement Amendments to the 2013

Mortgage Rules: Statements, DQ, and Formatting

Enhances the mortgage statement to meet regulatory

amendments, including treatment of delinquencies, charged

off loans, early intervention, close proximity and loss

mitigation.

Targeted Releases: 2016.01, 2017.00 & 2017.01


CFPB Home Mortgage Disclosure Act

Expands data collection requirements to include additional

loan types and more borrower information. Larger servicers

will be required to report HMDA data quarterly. A new web-

based submission tool for reporting HMDA data is under

development.

Effective: 2018 data begin reporting in 2019

Impact to Episys: HMDA Reporting Modifications

enhancement

Targeted Release: 2017.01

Enhancements


2016.01 Enhancements

Amendments to the 2013 Mortgage

Rules: Statements, DQ, and Formatting

2016 IRS Reporting Changes





FinCEN 314(a) PowerOn Specfile Modification

Credit Retrieval - Military Lending Act of 2016

Rate Cap for Military APR – Part 3

Credit Card MAPR Cap





SBA 1502 Reporting Enhancement

FinCEN Customer Due Diligence

HMDA Reporting Modifications

2017 IRS Reporting Changes

Product Announcements


OFAC PowerOn® Specfile Product

Announcement


Bridger Insight®

XG SLA

• February 2016

Integration and phase

out SLA

• August 2016

End of support

for OFACspecfiles

• December 2017

OFAC specfiles

pulled from Episys®

• Release 2018.00

OFAC Specfiles: End of Support

Shop for a new solution: August 2016 – December 2017


Next steps:

How will this change impact your credit union?

– Know the timeline

– Know your risk profile

– Research your options based on risk profile,

price, usefulness

Episys® Identity and Sanctions

Screening Integration

LexisNexis® OFAC Bridger Insight® XG

OFAC Specfiles: End of Support


Contact

If you have any questions about the Episys® Identity and

Sanctions Screening Integration or LexisNexis® OFAC

Bridger Insight® XG products, please email the Symitar

Inside Sales Team at [email protected].

mailto:[email protected]


ProfitStars® CECL Calculator

Financial Accounting Standards Board (FASB) modified

the methodology accounting for impairment of financial

instruments

Old methodology: Incurred Loss Model, fund the ALLL

via provision expense after loss is incurred or probable

New methodology: Current Expected Credit Loss

(CECL), recognize expected lifetime losses at

origination

Information: FASB Update 2016-13 - CECL


ProfitStars® CECL Calculator

How credit unions will be impacted?

Loan loss allowance could be significantly greater under

the new method

Increase in provision will decrease net income and

capital

Increase in costs and time to prepare and audit the ALLL

Effective: 12/15/2021

Impact to Episys: None

ProfitStars is creating a CECL solution

Resources


SEC Compliance Sessions

Product Demo – Enhanced Compliance Screening via

Episys® Integration with LexisNexis® Bridger

Taking the Sting Out of the Regulatory Heat

Updating your OFAC Solution

Where to find it: For Clients > Products &

Services > Core Solution > Episys > SEC Archive


Contact

Eleanor Hopkins

Episys Product Manager, Compliance

Symitar, a Jack Henry & Associates Company

Tel: (619) 542 - 6839

E-mail: [email protected]

Do you have any questions?

This presentation does not provide legal advice.

Compliance Town Hall Military Lending Act …Included payday loans, deposit advance products, auto...

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Transcript of Compliance Town Hall Military Lending Act …Included payday loans, deposit advance products, auto...