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.
3This presentation does not provide legal advice.
Speaker Information
Eleanor Hopkins, NCCO
Episys Product Manager, Compliance
Symitar, a Jack Henry & Associates Company
Tel: (619) 542 - 6839
E-mail: [email protected]
4This presentation does not provide legal advice.
Agenda
Military Lending Act
Background
Enhancements
Resources
Regulatory Changes
Product Announcements
Resources
Questions
Military Lending Act- Background
6This presentation does not provide legal advice.
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.
7This presentation does not provide legal advice.
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
8This presentation does not provide legal advice.
Military Lending Act Expansion
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
9This presentation does not provide legal advice.
Military Lending Act Expansion
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
10This presentation does not provide legal advice.
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)
11This presentation does not provide legal advice.
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
13This presentation does not provide legal advice.
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
14This presentation does not provide legal advice.
MLA Enhancement
Rate Cap for Military APR
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
15This presentation does not provide legal advice.
MLA Enhancement
Rate Cap for Military APR
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)
16This presentation does not provide legal advice.
MLA Enhancement – Defect 1117650
Rate Cap for Military APR
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
17This presentation does not provide legal advice.
MLA Enhancement – Defect 1117650
Rate Cap for Military APR
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
18This presentation does not provide legal advice.
MLA Enhancement – Defect 1117650
Rate Cap for Military APR
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
19This presentation does not provide legal advice.
MLA Enhancement – Questions
Rate Cap for Military APR
20This presentation does not provide legal advice.
MLA Enhancement – Questions
Rate Cap for Military APR
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?
21This presentation does not provide legal advice.
MLA Enhancement – Questions
Rate Cap for Military APR
1. What are the calculation
methods used?
22This presentation does not provide legal advice.
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.
23This presentation does not provide legal advice.
MLA Enhancement – Calculation Methods
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
24This presentation does not provide legal advice.
MLA Enhancement – Calculation Methods
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.
25This presentation does not provide legal advice.
§ 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.
MLA Enhancement – Calculation Methods
Open End Loans
26This presentation does not provide legal advice.
MLA Enhancement – Calculation Methods
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)
27This presentation does not provide legal advice.
MLA Enhancement – Questions
Rate Cap for Military APR
2. Why do the calculation
results vary from CUNA’s
calculation?
28This presentation does not provide legal advice.
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
29This presentation does not provide legal advice.
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
30This presentation does not provide legal advice.
MLA Enhancement – Questions
Rate Cap for Military APR
3. For closed end loans why
do you only do the calculation
once?
31This presentation does not provide legal advice.
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)
32This presentation does not provide legal advice.
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.
33This presentation does not provide legal advice.
MLA Enhancement – Questions
Rate Cap for Military APR
4. How does the calculation
account for insurance?
34This presentation does not provide legal advice.
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)
35This presentation does not provide legal advice.
MLA Enhancement – Questions
Rate Cap for Military APR
5. How can I calculate MAPR
before a loan is booked?
36This presentation does not provide legal advice.
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
38This presentation does not provide legal advice.
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
39This presentation does not provide legal advice.
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
40This presentation does not provide legal advice.
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
41This presentation does not provide legal advice.
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
42This presentation does not provide legal advice.
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.
43This presentation does not provide legal advice.
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
45This presentation does not provide legal advice.
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
46This presentation does not provide legal advice.
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
Regulatory Changes
48This presentation does not provide legal advice.
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
49This presentation does not provide legal advice.
CFPB Amendments to the 2013 Mortgage
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
50This presentation does not provide legal advice.
CFPB Amendments to the 2013 Mortgage
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
51This presentation does not provide legal advice.
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
53This presentation does not provide legal advice.
2016.01 Enhancements
Amendments to the 2013 Mortgage
Rules: Statements, DQ, and Formatting
2016 IRS Reporting Changes
54This presentation does not provide legal advice.
2017.00 Enhancements
Amendments to the 2013 Mortgage
Rules: Statements, DQ, and Formatting
FinCEN 314(a) PowerOn Specfile Modification
Credit Retrieval - Military Lending Act of 2016
Rate Cap for Military APR – Part 3
Credit Card MAPR Cap
55This presentation does not provide legal advice.
2017.01 Enhancements
Amendments to the 2013 Mortgage
Rules: Statements, DQ, and Formatting
SBA 1502 Reporting Enhancement
FinCEN Customer Due Diligence
HMDA Reporting Modifications
2017 IRS Reporting Changes
Product Announcements
57This presentation does not provide legal advice.
OFAC PowerOn® Specfile Product
Announcement
58This presentation does not provide legal advice.
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
59This presentation does not provide legal advice.
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
60This presentation does not provide legal advice.
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].
61This presentation does not provide legal advice.
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
62This presentation does not provide legal advice.
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
64This presentation does not provide legal advice.
65This presentation does not provide legal advice.
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
66This presentation does not provide legal advice.
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.