P R O T E C T I N G O U R S E R V I C E M E M B E R S

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1 P R O T E C T I N G O U R S E R V I C E M E M B E R S T H E M I L I TA RY L E N D I N G A C T A N D S E R V I C E M E M B E R S C I V I L R E L I E F A C T

2 GOALS FOR TODAY Understand the Military Lending Act What it does What and who is covered Limitations Disclosures Next steps to comply Review of SCRA What it does How does it compare to MLA Additional considerations - Collections Things to Consider

3 WHAT DOES MLA DO? Provides the following protection for our military members and their dependents: Cap of 36% Military Annual Percentage Rate (MAPR) Prohibits requiring service member to submit to onerous legal notice requirements, or waive their rights, or require payroll allotment as a condition of credit. Does all of our staff understand what this Act does for our membership?

4 DOCUMENT DIFFERENCES MLA Requirements MAPR Statement Space for or inclusion of toll free number to comply with oral disclosure requirement No security interest in member shares NO waivers of member s rights NO purchase money loan disclosures (since these loan types are exempt from coverage) What changes must we make to our current forms in order to comply with these requirements?

5 COVERED CONSUMER CREDIT - REVISED Installment loans: Vehicle refinances Refinance of installment loan for secured by personal property Overdraft lines of credit with finance charges Vacant land loans Small dollar loans Does our credit union offers these types of loans?

6 EXCEPTIONS Residential mortgage transactions Vehicle purchase loans Personal property purchase loans Does our credit union offers these types of loans?

7 COVERED BORROWERS Full time active duty service members Those under a call or order of more than 30 days National guard full time duty for 180 consecutive days or more Reserves of Army, Navy, Air Force or Marine Corps Service member dependents Does our field of membership include a large number of servicemembers covered by this Act? How do we currently determine this?

8 SERVICE MEMBER S DEPENDENTS Spouse Child under age of 21 or meets certain conditions Child under 23 if a full student Parent or parent in law residing in their home who is dependent for more than 1/2 of support Unmarried person over whom the Service member has custody by court order or meets other conditions Does our field of membership include servicemembers that would be covered by this Act? How do we currently determine this?

9 SAFE HARBOR Identifying covered borrowers by: DMDC s MLA webpage/database Relying on credit reports Create and retain record How will we identify covered borrowers in order to obtain Safe Harbor? How will we retain proof of this?

10 DMDC S MLA DATABASE

11 DMDC S MLA DATABASE

12 CREDIT REPORT MLA INDICATOR

13 TIMING REQUIREMENTS Status of covered borrower must be determined only at the time: A member initiates a transaction or 30 days before that time A member applies to establish the account or 30 days before that time The credit union processes a firm offer of credit that includes the status of the borrower and the member responds to offer within 60 days What procedures will be affected by this?

14 LIMITATIONS - MAPR Cap of 36% MAPR on: Closed end credit Any billing cycle for openend credit Borrower must agree to it in promissory note or credit agreement MAPR includes: Any fee for debt cancellation contract Any fee for a credit-related ancillary product sold in connection with loan (GAP, MRC) Some exclusions for credit cards Do we offer products with fees that will now be included in the MAPR? How will we calculate this?

15 LIMITATIONS - FEES Cannot charge a fee when there is no balance in a billing cycle, except for participation fee. How will we ensure a procedure is in place to comply with this limitation?

16 DISCLOSURE REQUIREMENTS For covered borrowers, credit union must provide to each: Statement of the MAPR applicable to the extension of credit Any disclosures Reg Z requires Clear description of the payment obligations (consistent with Reg Z disclosures) In writing and Verbally either In person or via toll free number Toll Free XXX-XXX-XXXX How will we provide this disclosure in writing to covered borrowers? How will it be provided orally?

17 DISCLOSURE CONTENT Federal law provides important protections to members of the Armed Forces and their dependents relating to extensions of consumer credit. In general, the cost of consumer credit to a member of the Armed Forces and his or her dependent may not exceed an annual percentage rate of 36%. This rate must include, as applicable to the credit transaction or account: the costs associated with credit insurance premiums; fees for ancillary products sold in connection with the credit transaction; any application fee charged (other than certain application fees for specified credit transactions or accounts); and any participation fee charged (other than certain participation fees for a credit card account). What document will be created or used in order to provide this disclosure?

18 PENALTIES Misdemeanor Fines and imprisonment of up to one year Actual damages for each violation Punitive damages Court and legal fees Contract is void from its inception

19 EFFECTIVE DATES Consumer credit (except credit cards) October 3, 2016 Credit cards October 3, 2017

20 WHAT DOES THE SCRA DO? The SCRA provides protections for servicemembers in the event that their military service impedes their ability to meet financial obligations incurred before entry into active military service. Does all of our staff understand what this Act does for our membership?

21 COVERED MEMBERS Full time active duty service members Those under a call or order of more than 30 days National guard full time duty Some benefits for Service member dependents Does our field of membership servicemembers covered by this Act? How do we currently determine this?

22 PRIMARY PROVISIONS 6% cap on interest rates Credit rating protection Judicial relief Protection against eviction Ability to terminate property leases Cancellation of auto leases Relief from foreclosure and forced sales Termination and reinstatement of insurance Which staff or departments are responsible for these provisions? Is there a process in place to ensure compliance?

23 6% RATE REDUCTION Debt must have been incurred by the servicemember before the member entered active duty; All such debts shall not bear an interest rate more than 6% per year during the period of active duty; All interest in excess of 6% must be forgiven by the creditor and cannot be shifted to the principal or shifted for payment at a later time; The creditor must reamortize the payments on the loan based on the 6% interest rate, which will result in lower monthly payments for the servicemember; This SCRA provision does NOT apply to obligations incurred by the member while on active duty. Which staff or departments are responsible for these provisions? Is there a process in place to ensure compliance?

24 CREDIT RATING PROTECTION Lenders cannot deny or revoke credit, change the terms of an existing loan, or refuse to grant credit because servicemember sought SCRA protections. Any claim of rights under SCRA cannot be used as the basis for a lender to conclude that servicemember is unable to pay a debt or to generate an adverse credit report. An insurer may not refuse to insure servicemember based on any SCRA protections invoked. Is all lending staff aware of this protection?

25 JUDICIAL RELIEF Three primary areas of coverage under SCRA: Protection against entry of default judgements Stay of proceedings when the servicemember has notice of proceeding Stay or vacation of executions of judgements, attachments and garnishments Is all collection staff aware of these protections?

26 HOW TO DETERMINE ELIGIBILITY Servicemember must notify credit union in a timely manner. Request a copy of active duty orders Timeframe for notification up to 180 days after release from active duty Credit Union is responsible for determining this for collections activity Is staff aware of what documents to request from a member on active duty and timeframes?

27 LET S COMPARE IDENTIFYING COVERED BORROWER MLA The credit union must determine a covered borrower. There is no lookback. Determination of coverage is made during consummation. SCRA For interest rate reduction, the member must notify the credit union of their active duty. Changes will be made to loans consummated prior to active duty.

28 LET S COMPARE INTEREST RATE MLA The 36% MAPR limitation is for the life of the loan and determined at the time of consummation. SCRA The 6% interest rate only applies to debts incurred prior to active duty. Relief ends when the member returns from active duty (or for mortgage related debt, 12 months following their return).

29 LET S COMPARE DEFINITION OF DEPENDENT MLA Dependents are defined differently and the protections under the Act also apply to them. SCRA Generally, unless they are a joint obligor on a loan, dependents are not entitled to receive the reduced rates. Protections are also provided to servicemembers in the foreclosure process.

30 ADDITIONAL CONSIDERATIONS - COLLECTIONS There is no requirement for service members to provide a written notice or a copy of orders to the lender in connection with a foreclosure or other debt enforcement action against real estate. It is lender s responsibility to inquire about military status Searching status on DoD s website Contacting the member Examining files for indicators of military service Additional disclosure requirements for real estate loans to servicemembers Regulators are stressing additional internal controls to manage risk in this area

31 INTERNAL CONTROLS TO MANAGE SCRA RISK Determining military status prior to initiating a civil action by reviewing information available on the Defense Manpower Data Center (DMDC) SCRA database ( ); NOTE: The DMDC s SCRA database is separate from the MLA database used to identify covered borrower for those protections Researching military status periodically; Maintaining up-to-date books and records that document military status; Providing comprehensive training to loan officers and collections departments on SCRA compliance; and Having a quality assurance process to ensure that employees are following the credit union s policies and procedures.

32 NEXT STEPS Review the To Consider points for each slide. Use the Military Lending Act Checklist to work through each area for MLA. Review current SCRA procedures to ensure compliance. Call your Compliance Consultant for help!

33 ANY QUESTIONS? T H A N K YO U F O R YO U R T I M E A N D T H A N K T H E M F O R T H E I R S E R V I C E