2018 GNYADA Membership Directory

Violators of the MLA Regulations are subject to draconian penalties, including $500 per violation in actual damages, in addition to punitive damages, equitable or declaratory relief, court costs, and attorney’s fees. Knowing violations are treated as misdemeanors, which can lead to fines or imprisonment. Also, violating contracts are void from the inception of the contract (that is, the creditor cannot collect any principal or interest). You should seek advice of counsel to determine whether the MLA applies to your transactions. CFPB Small Dollar Rule Effect on Auto Lending On October 5, 2017, the Consumer Financial Protection Bureau (CFPB) issued its final rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans (the “Small Dollar Rule” or “Rule”). Although the Small Dollar Rule is targeted at short-term, high-interest rate loans (e.g., payday loans), the Rule has potential consequences for the auto financing industry. The final rule is effective on January 16, 2018, and the compliance deadline for most provisions of the Rule is August 19, 2019. The Rule applies to three types of consumer loans: (i) loans with a term of 45 days or less called“short-term loans,” (ii) balloon‐payment loans, and (iii) loans charging an annual percentage rate over 36% that include a“leveraged payment mechanism,” such as a debit authorization. Covered short-term loans and balloon payment loans are subject to extensive and burdensome underwriting rules and a new type of credit reporting requirement. Covered leveraged payment loans are not subject to the underwriting and credit reporting requirements, but they are subject – along with covered short-term loans and balloon loans – to new disclosures that must be given before processing certain payments and limits on the number of payment attempts. Note that although the Rule is written in terms of “loans,” the term loan is defined to include any extension of credit and would therefore include retail installment sales. The CFPB provided for an exemption from the Small Dollar Rule for purchase money loans. Specifically, the Rule does not apply to credit extended for the “sole and express purpose of financing a consumer’s initial purchase of a good,”when the “credit is secured by the property being purchased.” In other words, if a consumer receives credit for her initial purchase of a car and the car secures the transaction, then the transaction is excluded from the Rule. However, there are two important limitations on this exemption: financing ancillary products, and refinancing a purchase money transaction. Concerning ancillary products, the CFPB noted that the purchase money exemption does not encompass“ancillary products that are being sold along with a vehicle,”but“are not themselves the good in which the lender takes a security interest as a condition of the credit.”Therefore, financing an ancillary product along with a car could mean that there’s no purchase money exemption for the transaction, and the transaction could be deemed a “covered loan.” Additionally, the CFPB expressly states in the commentary accompanying the Rule that the purchase money exemption does not extend to refinances of purchase money credit. Therefore, if an auto finance transaction involves ancillary products or refinancing, then it could be covered by the Rule if the (i) term is 45 days or less, (ii) transaction has a balloon payment, or (iii) APR is over 36% and the transaction includes a leveraged payment mechanism. Note that, besides the purchase money exemption, the Rule also contains an “accommodation” exemption for loans made by a lender who makes 2,500 or fewer covered short‐term or balloon payment loans per year and

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