[Rich]

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.

Topic

[rcooper]

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.

[cowen]

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?

[cowen]

Anyone?

[rcooper]

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?

[cowen]

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

[rcooper]

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.

[jwelch]

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?

[rcooper]

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.

[Author]

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