Here in NAFCU’s regulatory compliance division, we are always hearing about what regulations are hitting credit unions the hardest and causing the most trouble. One common source of regulatory burden has been the Defense Department’s changes to its rules implementing the Military Lending Act.
The MLA has been a compliance headache for credit unions for a number of reasons, but there is more to come with the upcoming Oct. 3, 2017, compliance deadline for rules affecting credit card accounts.
The July 2015 rule requires credit unions to calculate an effective military annual percentage rate (MAPR) each billing cycle and re-credit fees or premiums charged in excess of the 36 percent MAPR cap. MLA compliance has already been difficult enough for products with pricing structures that are far less complicated than mainstream credit card accounts – and credit unions have every reason to believe the process for credit cards will be even more unwieldy.
As credit union compliance officers are learning, they will not simply be able to calculate the total charges included in the MAPR and waive an amount necessary to be in compliance with the 36 percent cap. The DoD’s formula for calculating the MAPR for open-end consumer credit plans requires credit unions to use a calculation method originally intended as an optional disclosure for home-equity lines of credit under Regulation Z. This is not only complex, but differs from calculation methods used currently. This could require substantial changes to existing systems, if not the adoption of entirely new systems.
To further complicate things, if credit unions unintentionally hit the 36 percent cap in a billing cycle, they would be required to re-credit fees or premiums under the MLA rule. NAFCU is concerned that this approach might impact credit unions’ flexibility in charging similar fees in subsequent billing cycles.
These potential unintended consequences and more have convinced us that a deadline extension is vital. NAFCU is advocating for the DoD to use its authority to extend the MLA exemption for credit card accounts until at least Oct. 3, 2018 – as the rule allows. The DoD might also be able to consider possible regulatory solutions for these problems during the intervening period.
In the meantime, NAFCU’s regulatory compliance team will continue to field our members’ questions and help make sure you can continue to offer fantastic products and services to your members. That’s our goal – and we encourage you to stay in touch by phone or email.
Another great way to stay in touch with our team is to come spend a few days with us at the NAFCU Regulatory Compliance School, slated for April 10-14 at the Crystal Gateway Marriott in Arlington, Va. As we continually work to keep school current, we added MLA to our curriculum while keeping other fundamental issues like bylaws, field of membership, the Truth in Savings Act, mortgage rules and more.
It’s hard to stay up-to-date on all the compliance issues coming credit unions’ way – but this school is an excellent opportunity to learn and compare notes with other compliance professionals. I hope to see you there!