[lfink]

In listening to your recent webinar on Implementing the Military Lending Act, you stated that for open-end credit there can be a up to $100 participation fee that is charged yearly if there is no balance. Would this include the $25 annual fee that is charged for an overdraft line of credit and if so, does this get incorporated into the MAPR calculation for that month? Also a clarification, if the open-end credit (overdraft line of credit) is set up to have an annual fee of $25 that is charged, is that calculated at the initial calculation of the MAPR at loan opening or just during the month it is actually assessed?

[jhoke]

Similar question here . . . A) Is the $25.00 Annual Fee considered a Participation Fee?; and B) if so, when will I be able to charge it?

The way I currently understand it, if my Annual Fee is indeed considered a Participation Fee, I would be able to charge it during a billing cycle where there is no balance [232.4(c)(2)(ii)(B)] but I would not be able to charge all or part of my Annual Fee during a billing cycle where there is a balance and the fee causes the MAPR for that cycle to exceed 36%.

Any thoughts?

[rcooper]

The term “participation fee” is not defined in the final rule. However, it does seem an annual fee for the benefit of maintaining the line of credit would be considered a participation fee.

I think jhoke’s explanation of how this charge can be applied is accurate. The preamble to the final rule (p. 43584) says this when discussing MAPR requirements and applying a participation fee when there is no balance:
Section 232.4(c)(2)(ii)(B) generally
would prohibit a creditor from imposing
a charge in an open-end credit plan for
any billing cycle during which there is
no balance. However, this provision
includes an exception for a participation
fee (which otherwise would be required
to be included under
§ 232.4(c)(1)(iii)(B)) because the
Department concludes that there might
be circumstances in which a creditor
should be allowed to charge a bona fide
fee for maintaining an open-end line of
credit for a covered borrower. Still,
recognizing that a creditor could
structure a high-cost, open-end line of
credit to fit within this exception by
substantially increasing the
participation fee, the Department has
adopted a provision that limits that fee
to $100 per annum, regardless of the
billing cycle in which the participation
fee is imposed. The Department believes
that $100 is the highest reasonable
amount that a creditor could charge as
a bona fide participation fee, during a
billing cycle in which there is no
balance, for the purposes of keeping the
line of credit open to the covered
borrower. Furthermore,
§ 232.4(c)(2)(ii)(B) contains a provision
to clarify that the $100-per annum
limitation on the amount of the
participation fee does not apply to a
bona fide participation fee charged to a
credit card account that would be
eligible for the exclusion under
§ 232.4(d).

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