On September 30, the CFPB released updated examination procedures for Military Lending Act (MLA) compliance. Compliance with the final rule amending the MLA, issued by the Department of Defense (DoD) in July 2015, was required for creditors of most consumer credit products as of this past Monday, October 3. The final rule applies to all consumer credit transactions or accounts for consumer credit “consummated or established” on or after October 3, 2016. The Bureau’s updated MLA exam procedures apply to examinations with review periods after that date.
The CFPB has enforcement authority for the MLA’s requirements and previously addressed compliance with the Act in its Short-Term, Small-Dollar Lending examination procedures. The updated procedures reflect the expanded scope of the MLA and are effectively a consolidated source of the DoD guidance on the final rule that we’ve received up to this point. The procedures cover the requirements of the final rule and include key portions of the supplementary information published in the final rule’s Federal Register notice as well as guidance provided in the DoD’s recent Interpretive Rule issued on August 26.
The CFPB’s updated MLA exam procedures place particular emphasis on Compliance Management System elements to implement and ensure compliance with the MLA and its regulations, including policies and procedures, training, monitoring and testing, and audit and corrective action. Specifically, the procedures direct examiners to evaluate the extent and adequacy of an institution’s policies and procedures related to mandatory loan disclosures, the calculation of MAPR, and covered-borrower identification.
The updated exam procedures also highlight some of the questions the DoD has left unanswered, such as how and for how long a creditor is required to maintain records for purposes of the safe harbor for covered-borrower identification, and the scope of the exemption for purchase money loans for auto finance transactions.
On September 29, the FFIEC released revised Interagency MLA examination procedures that appear parallel to those issued by the Bureau. The release of these updated procedures suggests that regulators do not intend to postpone transactional testing for MLA compliance as trade groups had requested. In contrast, the NCUA has instructed examiners to accept a credit union’s reasonable and good faith efforts to comply with the final rule during the first examination following the implementation date.
On September 20, 2016, Ballard Spahr attorneys conducted a webinar “The DoD’s 11th Hour Interpretive Rule For New MLA Rules,” which focused on the DoD’s interpretive guidance, lingering questions and concerns with the final rule, and compliance considerations and strategies.