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MLA Identification

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Viewing 9 posts - 1 through 9 (of 9 total)
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  • #10050
    Rich
    Member

    Do we need to check every borrower to see if we have a covered borrower under the MLA, or just those that apply for covered loans?

    In other words, if someone comes in to borrow money to purchase a car do we need to check for covered borrower status?

    Thanks.

    #10060
    rcooper
    Member

    The MLA does not apply to certain transactions. It states, consumer credit does not mean:
    (i) A residential mortgage, which is
    any credit transaction secured by an
    interest in a dwelling, including a
    transaction to finance the purchase or
    initial construction of the dwelling, any
    refinance transaction, home equity loan
    or line of credit, or reverse mortgage;
    (ii) Any credit transaction that is
    expressly intended to finance the
    purchase of a motor vehicle when the
    credit is secured by the vehicle being
    purchased;
    (iii) Any credit transaction that is
    expressly intended to finance the
    purchase of personal property when the
    credit is secured by the property being
    purchased;
    (iv) Any credit transaction that is an
    exempt transaction for the purposes of
    Regulation Z (other than a transaction
    exempt under 12 CFR 1026.29) or
    otherwise is not subject to disclosure
    requirements under Regulation Z; and
    (v) Any credit transaction or account
    for credit for which a creditor
    determines that a consumer is not a
    covered borrower by using a method
    and by complying with the
    recordkeeping requirement set forth in
    § 232.5(b).

    For those transactions MLA would not apply. We recommend that you look at each transaction to determine if one of the exceptions apply and document your findings within the respective loan file. If you determine it is not a covered transaction under MLA not further action would be necessary.

    #10081
    cowen
    Participant

    There’s a debate going on with a vendor: They are saying that if a loan “falls below the 36% rate cap, you don’t have to do covered borrower lookups.”

    According to the regulation, as noted in the reply above, there are very specific exceptions to the rule. If a loan is consumer purpose, and is not any of the exceptions noted in i-iv, wouldn’t you have to verify if an applicant is a covered borrower before you could determine if MLA applied?

    #10109
    cowen
    Participant

    Anyone?

    #10111
    rcooper
    Member

    I apologize we overlooked your question.

    I agree with you cosborne. There are other requirements and limitations beyond the 36% MAPR that you will need to comply with if you have a covered borrower (e.g. disclosure requirements in 232.4 and other limitations in 232.8). You will need to know if you have a covered borrower in order to apply these requirements.

    What vendor are you using?

    #10112
    cowen
    Participant

    If the loan and fees will never reach 36% MAPR, do you need to verify if you have a covered borrower?

    #10113
    rcooper
    Member

    If you are making a consumer credit transaction to a covered borrower other limitations and requirements apply beyond the 36% MAPR cap (see post above), so yes, you will still need to determine if you have a covered borrower. There are safe harbor options for making that determination.

    #10258
    jwelch
    Participant

    rcooper ~ in your response to Rich on 9/27/16, you indicated that “For those transactions you would not need to identify covered borrowers.”

    One of our loan officers is challenging the use of the MLA checklist. They do NOT want to complete the checklist if the loan is for commercial purposes. (The loan would not be subject to MLA)
    My question is would it be a “best practice” to always complete the checklist for all loans or to simply complete it ONLY for consumer loans?

    #10273
    rcooper
    Member

    Use of the checklist is not a requirement, but we do believe it is a best practice. When used consistently, it is evidence that you have verified that each loan is or is not covered under the MLA. It is also built into the procedures we distributed back in April, so if you decide not to use the checklist for all transactions you will need to adjust those procedures as well. Also, if you choose not to use the checklist I recommend that you have an alternative method for documenting your file to show that the loan is not covered under the MLA and why.

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