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The MLA provides various protections for “covered borrowers.” Those protections fall into two main categories: (1) a 36% Military Annual Percentage Rate (MAPR) cap, and (2) “other MLA terms and conditions,” including oral and written disclosure requirements and certain specified prohibitions and limitations, such as a prohibition against using the title of a vehicle as security for the consumer credit obligation. The MAPR is an all-inclusive APR that eliminates some prior “finance charge” exceptions under Regulation Z. For example, the MAPR calculation must include (a) fees/premiums charged for voluntary credit insurance, debt cancellation contracts, and debt suspension agreements, and (b) fees for any ancillary products sold in connection with the consumer credit. In order to ensure that the terms of any consumer credit transactions entered into with covered borrowers meet the requirements of the MLA, the creditor must determine the covered borrower status of every applicant for consumer credit. Though the creditor is not required to use a specific method to determine covered borrower status, the MLA Regulations do allow a safe harbor for covered borrower status determinations. In order to obtain the safe harbor, creditors must either (1) directly or indirectly (perhaps through a service provider) verify the consumer’s covered borrower status through the MLA database, or (2) verify the consumer’s covered borrower status by using a consumer report obtained from a nationwide consumer reporting agency that has a statement, code, or indicator (if any) concerning the consumer’s covered borrower status. Doing so, and keeping a record of the findings, provides a safe harbor from liability under the MLA’s terms in such status determinations. 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. In February 2019, the CFPB issued a notice of proposed rule making with regards to mandatory underwriting provisions. On June 6, 2019, they issued a final rule to delay compliance date for the mandatory underwriting provisions to November 19, 2020. As currently written, 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.

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