CUNA and Defense Credit Union Council representatives met with the Department of Defense (DoD) in mid-September to discuss Military Lending Act (MLA) issues.
DoD said forthcoming additional guidance wouldn’t cover credit card issues but would address hybrid or cash-out loans. We expect the new guidance will have been issued and CUNA will have reviewed it by the time this article is published.
CUNA’s interactive spreadsheet
CUNA has released an interactive Excel spreadsheet—free to member credit unions—that you can use to comply with the MLA requirements for determining “reasonable” and bona fide credit card fees.
Find links to the spreadsheet and instructions in CUNA’s Compliance Community (compliancecommunity.cuna.org) and in CUNA’s e-Guide to Federal Laws and Regulations.
Using the spreadsheet likely will save credit unions significant time compared to performing the steps manually, a process outlined below.
Reasonable and bona fide fees
Under a safe harbor in the MLA rule, a credit union may exclude a bona fide credit card fee from the Military Annual Percentage Rate (MAPR) if the fee is considered “reasonable.”
To be eligible, the fee must be less than or equal to the average fee for the same or similar product charged by five separate card issuers that each have at least $3 billion in outstanding credit card balances at any time during the three-year period preceding the time the average is determined.
Currently, roughly 20 large card issuers meet this requirement, and only one is a credit union. Together, these card issuers have about 260 card agreements in the Consumer Financial Protection Bureau’s card agreement database.
Only about 85 of the agreements appear to be useful for MLA purposes.
The exclusion generally applies to finance charges under Reg Z such as cash advance fees, foreign transaction fees, balance transfer fees, transaction fees for purchases, and minimum interest charges.
Under Reg Z, late or overlimit fees aren’t finance charges, aren’t included in the calculation of the MAPR, and as such don’t fall under the exclusion.
Also, the exclusion doesn’t apply to fees or premiums for credit insurance, fees for a debt cancellation contract, fees for a debt suspension agreement, or to fees for a credit-related ancillary product. You must include those fees in the MAPR calculation.
To manually determine that fees are reasonable and bona fide, credit unions must:
• Identify all large card issuers that meet the above criteria.
• Select five card issuers to review.
• Review or obtain copies of the five card issuers card agreements—the CFPB’s credit card database may be used for this purpose.
• Select card agreements from the five card issuers that are similar or identical to your card products.
• Note the credit card fees charged by the five card issuers that are considered finance charges under Reg Z that are identical to the card fees your credit union charges.
• Average each specific card fee from the five card issuers that corresponds to a specific fee your credit union wishes to exclude from the MAPR calculation.
• Compare your fees to the average fees from the five card issuers and make sure your fees are less than or equal to the average.
For example, you might have an average for a cash advance fee, an average for a foreign transaction fee, and an average for a balance transfer fee.
Comparing fees and card types in many cases will be difficult because fees may be listed as specific dollar amounts, a range of dollar amounts, or a range of percentages such as 3% to 5% of the cash advance amount.
These types of differences make the comparison more difficult.
Once your credit union has determined that your fees are reasonable and bona fide, you should retain documentation of the safe harbor calculations in case your results are challenged by your regulator or in a court of law.
If your credit union charges any of the transaction fees identified above—or any other fee that would be considered a finance charge under Reg Z—on a credit card account that could be provided to a covered borrower, you will likely have to go through this process.
MICHAEL MCLAIN is CUNA’s senior federal compliance counsel.