Spotlight on the Military Lending Act, Part 3: Falling in Line with MLA Compliance

Sasha-LeonhardtKirk-Jensen-webWith recent changes in the regulations implementing the Military Lending Act (“MLA”), creditors are now reevaluating their compliance plans to ensure they are prepared for the new regulations.  Although there is no formal guidance on what federal regulators will look for in reviewing MLA compliance, the commentary that accompanied both the proposed and final rule gives some insight as to where regulators will focus examination and enforcement resources.  Below, we discuss some of these likely areas of focus, and offer suggestions for how institutions can prepare for regulatory scrutiny.

Determining military service and MLA safe harbor provisions

The MLA only applies to a “covered borrower,” which is either a servicemember (as defined under the MLA) or a servicemember’s dependent.  The MLA provides two safe harbors to determine if a consumer is a covered borrower:  (1) a set of results from the DoD’s MLA database, or (2) a military status indicator in a consumer report.

Although both of these approaches are optional—and a creditor may use a different method to determine if an individual is eligible for MLA protection—they provide several benefits.  They are both determinative, so even if the borrower is in fact a servicemember a safe harbor check that shows otherwise will govern.  Both checks can also be done without
inconveniencing the consumer or requiring them to attest to their military status.

However, these safe harbor approaches are only effective if the results are actually retained by the creditor.  Since military status checks must be performed at origination, we recommend that the results of these checks be retained with the origination documents.  Not only does the outcome of the military status check determine the substantive terms of the actual credit obligation, but by keeping all of these documents together, a creditor can ensure that they have all of the governing origination documents are in a single, secure location. Read more…


Spotlight on the Military Lending Act, Part 2: Planning for Compliance

Andrew-Grant-captionManley-Williams-caption Ben-Olson-captionCompliance with the revised Department of Defense (“DoD”) regulations under the Military Lending Act (“MLA”) is not mandatory until October 3, 2016 or, for most credit cards, until October 3, 2017.  However, as the recent implementation of the Dodd-Frank Act mortgage regulations shows, a year or even two can pass quickly.  Therefore, institutions should begin planning now.  The following are answers to three key questions that can help you start the planning process.

  1. Which products will be covered by the revised MLA regulations?

The revised MLA regulations apply far beyond the narrow range of small dollar loan products covered today.  Instead, reflecting the DoD’s desire to match to the definition of consumer credit under the Truth in Lending Act’s Regulation Z, the MLA regulations will apply to credit offered or extended to a covered borrower that is:

  • Primarily for personal, family, or household purposes; and
  • Either subject to a finance charge or payable by a written agreement in more than four installments.

However, the following types of credit are excluded:

  • Residential mortgages: Transactions secured by an interest in a dwelling, including a transaction to finance the purchase or initial construction of the dwelling.
  • Secured motor vehicle purchase loans: Transactions that are expressly intended to finance the purchase of a motor vehicle and are secured by that vehicle.
  • Secured personal property purchase loans: Transactions that are expressly intended to finance the purchase of personal property and are secured by that property.
  • TILA-exempt transactions: Transactions that are exempt from Regulation Z (other than pursuant to a State exemption under 12 CFR § 1026.29) or otherwise not subject to disclosure requirements under Regulation Z.

Accordingly, the revised MLA regulations should not affect most mortgage, auto, or commercial lending.  The new regulations will, however, apply to most credit card accounts, overdraft or personal lines of credit, unsecured closed-end loans, and deposit advance products.  Therefore, institutions should focus on preparing the lines of business responsible for these products for compliance with the revised MLA regulations. Read more…


Spotlight on the Military Lending Act: Did the Final Rule Improve on the Proposal?

Valerie-Hletko-captionBen-Olson-captionOn July 22, 2015, the Department of Defense (“Department”) released its final rule amending the regulations that implement the Military Lending Act (“MLA”), which means that a wider range of credit products—including open-end credit—offered or extended to active duty service members and their dependents (“covered borrowers”) will now be subject to the MLA and its “all-in” 36% military annual percentage rate (“MAPR”) cap.
Andrew-Grant-captionManley-Williams-captionSpecifically, the Department expanded the definition of “consumer credit” to be consistent with credit that is subject to the Truth-in-Lending Act (“TILA”)—credit offered or extended to a covered borrower primarily for personal, family, or household purposes, and that is (i) subject to a finance charge or (ii) payable by a written agreement in more than four installments.

In response to the initial proposed rule, financial services industry stakeholders undertook a substantial effort to show how proposed modifications to the MLA regulations were overly broad and, in parts, inconsistent with the Department’s mandate under the MLA.  At a high level, industry comment letters fell into five categories: Read more…


Spotlight on Vendor Management: Mortgage Industry Continues To Bear Brunt of CFPB Regulatory Burdens

Moorari-Shah-webElizabeth-McGinn-webMortgage industry players have had to adapt quickly in recent years to the evolving regulatory environment, and the latest scramble for mortgage lenders includes the various downstream effects of pending rule changes set to take effect on August 1, 2015, related to disclosures required under the implementing regulations of the Truth-in-Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”). A critical factor to successful implementation of this historic set of rule changes, known as the TILA-RESPA Integrated Disclosure (“TRID”) rule, is coordinating with various vendors to address new timing and information requirements for Loan Estimates and Closing Disclosures, which are creating project management nightmares for mortgage professionals growing weary of the regulatory onslaught of revised regulations and enforcement actions.

“Despite the relative speed with which many companies have adapted to various rule changes since the CFPB came online, there seems to be a new rule change waiting in the wings at almost every turn,” observed Elizabeth McGinn, Partner in the D.C. office of BuckleySandler. “To make matters worse, managing service providers through the changes has undoubtedly tested the strength of deep industry relationships that have been in place for decades.”

Read more…


Spotlight on Vendor Management: “Brother’s Keeper” Enforcement Pattern Becoming the Norm

Moorari-Shah-webElizabeth-McGinn-webTwo regulatory enforcement matters announced in April offer a view into the current mindset of regulators in the ever-evolving world of vendor management.  First, the Federal Communications Commission (FCC) announced a $25 million settlement with a telecommunications carrier related to the unauthorized release of personal information of more than a quarter-million customers.  The identified cause of the data breach were employees of the carrier’s service providers based in Mexico, Columbia, and the Philippines, who confessed to selling customer information to unauthorized third parties.  In holding the carrier responsible, the FCC issued its largest data security enforcement action to date.  Although severe in its punishment, the FCC action did not break new ground, as regulators have shown an increasing willingness in recent years to assess monetary penalties against supervised institutions for legal violations committed by vendors.

“This approach is entirely consistent with the FCC’s past enforcement actions related to data security breaches, as well as those of other regulatory bodies where consumer harm has resulted,” advises Elizabeth McGinn, Partner in the D.C. office of BuckleySandler.  “In the current environment, virtually every regulator has made accountability a fundamental axiom of its vendor management guidance.”    Read more…


Spotlight on Electronic Discovery: Challenges Presented by the Internet of Things

Tihomir-Yankov-webElizabeth-McGinn-web E-discovery is poised to enter a new revolution as the Internet of Things (“IoT”) continues its seemingly exponential growth. IoT is the ecosystem of interconnected sensory devices that perform coordinated, pre-programmed – and even learned – tasks without the need for continuous human input. Consider your fitness tracker that logs your sleep and physical activity, or sensors in your vehicle that track your driving habits on behalf of your auto insurance provider– all of these objects log and upload data about your body and habits into the cloud for analysis and use in automated tasks. All this data, projected to impact nearly every facet of industrialized society, has presented numerous preservation, collections, and analytical challenges for litigators navigating e-discovery in the world of the IoT. But despite these challenges, litigators can use technological and legal tools to effectively manage IoT discovery.

  1. It is true that IoT was not designed with e-discovery in mind, but neither was email or social media.

IoT data is generated by machines and usually transferred to the cloud rather than being stored on devices. This data storage process, which is largely automated, presents numerous preservation conundrums for litigators.

“Although innovation in e-discovery necessarily lags behind the innovation of the underlying technology, technology has always solved the problem that it had created. There’s no reason to believe the IoT experience will be materially different. But until that day arrives, courts should avail litigants of protections against disproportionate e-discovery efforts,” said Elizabeth McGinn, Partner in the DC office of BuckleySandler LLP. Read more…


Spotlight on Vendor Management: Interpreting CFPB Guidance and Enforcement Actions

Moorari-Shah-webElizabeth-McGinn-webIn April 2012, the Consumer Protection Financial Bureau issued Bulletin 2012-03, a guidance document setting forth the CFPB’s high-level expectations related to the engagement of third party service providers by supervised financial institutions. Since then, the Bureau has often referenced the Service Provider Bulletin in subsequent guidance and enforcement actions, but has not provided much in the way of detailed requirements for managing service providers. Despite the absence of strong guideposts, the CFPB has nonetheless sent unmistakable signals to highlight conduct which fails to meet the Bureau’s expectations on a variety of vendor relationship issues.

“The CFPB has voiced its dissatisfaction on a number of occasions with supervised entities that fail to perform adequate vendor oversight,” according to Elizabeth McGinn, Partner in the D.C. office of BuckleySandler. “In particular, nonbanks and service providers that are still coming up-to-speed on federal agency supervision and enforcement have to be alert and aware of important trends in recent enforcement actions that challenge outdated notions of vendor management.” Read more…


Spotlight: Q&A with BuckleySandler’s Douglas F. Gansler, Former Attorney General of Maryland

Doug-Gansler-webOn January 20, 2015, Douglas F. Gansler, former Attorney General of Maryland, joined BuckleySandler LLP as a Partner in the firm’s Washington, DC, office upon completion of his second term as Maryland Attorney General. An accomplished trial lawyer and appellate advocate with a unanimous victory before the U.S. Supreme Court, Doug’s in-depth knowledge and understanding of complex civil, criminal and enforcement matters will be, as firm Chairman Andrew L. Sandler recently noted, “an invaluable asset for firm clients in navigating the government enforcement challenges they confront on a daily basis.”

As he makes the transition to private practice, Doug is optimistic about the opportunities in front of him and is looking forward to getting to know his new colleagues and meeting with firm clients. He shares some added professional and personal insights for InfoBytes Spotlight. Read more…


Spotlight on Student Lending (Part 2 of 2): Lessons Learned from CFPB Reports

In 2012 and 2013, the Consumer Financial Protection Bureau released several major reports and held field hearings focused on private student lending and servicing. In addition to recent CFPB activity, on June 25, 2013, the Senate Banking Committee held a hearing regarding private student loans at which, among other witnesses, the CFPB’s Student Loan Ombudsman Rohit Chopra testified.

The largest CFPB report, and the one most sweeping in scope, was the Bureau’s study of the private student loan market and characteristics of private student loans that was mandated by Dodd-Frank and issued in July 2012 (Private Student Loans Report). In addition, in October 2012, the Student Loan Ombudsman issued his Annual Report in which, among other things, he characterized the nature of the student loan complaints received through the CFPB’s student loan complaint portal up to that point (Annual Report of the Student Loan Ombudsman). Further, on May 8, 2013, the CFPB issued another report and held a field hearing focused on what it described as the “potential domino effect” of student loan debt on the broader economy and proposing several options to assist private student loan borrowers. Finally, testimony at the above-referenced Senate Banking Committee hearing focused largely on how to increase the low refinancing and modification activity in the private student loan (PSL) market.  Read more…


Spotlight on Student Lending (Part 1 of 2): Facing Increased Regulatory Scrutiny, Student Loan Lenders Prepare for CFPB Examinations

Currently, total outstanding student debt (both federal loans and private loans) has risen to roughly $1.1 trillion dollars. That figure represents an over 50% increase since 2008 and makes student loans the largest source of unsecured consumer debt – surpassing credit cards. At the same time, at least with respect to federal student loans, delinquencies have risen sharply during the same time period and, with unemployment rates for recent graduates still high by historic standards, the risk of continued high delinquency rates remains significant. Complicating matters is that student loan servicers, and servicers of private student loans in particular, have limited ability vis-à-vis a mortgage lender to modify those loans for borrowers in default.

Not surprisingly, given this backdrop, borrowers have lodged complaints with the Consumer Financial Protection Bureau (CFPB or Bureau) focused on their inability to obtain loan modifications, concerns about improper payment processing, and concerns about servicers’ debt collection practices. All of these factors have prompted the Bureau to draw comparisons to the recent mortgage servicing crisis and to increase focus and attention on the student lending and servicing industry in an effort to stave off a problem of those proportions. Read more…


Spotlight: Q&A with BuckleySandler’s Benjamin K. Olson, Former Senior CFPB Regulations Official

Consumer Finance Attorney Ben OlsonOn May 28, 2013, Benjamin K. Olson, former Deputy Assistant Director for the Office of Regulations at the Consumer Financial Protection Bureau (CFPB), joined BuckleySandler LLP as Counsel in the firm’s Washington, DC office. A recognized expert in the field of consumer financial protection regulation, Ben brings his valuable insights and broad experience on regulatory matters based on his experience at the CFPB, the Board of Governors of the Federal Reserve System (FRB), and the Federal Trade Commission (FTC). As he makes the transition to private practice, he’s excited about what lies ahead and has fond memories of his past eight years in government service. He shares some added professional and personal insights in this week’s InfoBytes Spotlight.

InfoBytes: Why did you decide to join BuckleySandler?

Benjamin K. Olson: For a number of reasons, BuckleySandler was a natural fit and, at the end of the day, an easy choice.  First, it’s a leading firm in the financial services field with a talented and experienced team already in place.  I know all too well from my experience in government that the range of issues financial institutions face are far too complex for any one person to handle alone.  For that reason, it was important to me to join a group whose expertise could compliment my own. Read more…

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Spotlight on the SCRA (Part 3 of 3): Federal vs. State

SCRA Attorney Kirk JensenThus far SCRA enforcement activity has focused on the federal act, leaving the states overlooked. “Most states have an SCRA equivalent,” explains Kirk Jensen, Partner in BuckleySandler’s Washington, DC office. “One of the biggest differences is the populations they protect.”

State SCRA equivalents are designed to protect state guard members acting on behalf of the state; for example, when the state guard is called upon in the situation of Katrina, the wildfires, or the flooding in the Midwest. In each of the situations, the state’s SCRA equivalent would provide protections to servicemembers. Read more…


Spotlight on the SCRA (Part 2 of 3): Ensuring Compliance

SCRA Attorney Kirk JensenRecent enforcement activity has demonstrated the agencies have taken to viewing the SCRA as a strict liability statute. This shift in interpretation makes financial institutions legally responsible for compliance with the SCRA. According to Kirk Jensen, Partner in BuckleySandler’s Washington, DC office, “this is a big game changer in how financial institutions react to the SCRA.”

The Department of Justice has had some success in bringing litigation in these matters against the smaller, unsophisticated companies. However, it is important to note that the court is not hearing all the relevant arguments. There has been an uptick in private litigation and some of the issues raised in the enforcement matters may also be raised in court. It is our hope that the defendants will make the relevant arguments to resolve some of the outstanding issues. Read more…


Spotlight on the SCRA (Part 1 of 3): Increased Enforcement Activity

SCRA Attorney Kirk JensenThe Servicemembers Civil Relief Act (SCRA) is designed to provide protection for military members as they enter active duty. The Act has origins dating back to the Civil War, but was first solidified in 1940 with the passage of the Soldiers and Sailors Civil Relief Act (SSCRA). In 2003, the SSCRA underwent modernizations, but the intent and language remained intact, to become what is known today as the SCRA.

Following the 2009 financial crisis and the rising number of foreclosures, reports began surfacing about banks and other financial institutions violating the SCRA. The Department of Justice began actively pursuing actions against institutions with the Office of the Comptroller of the Currency becoming involved later. Read more…


Spotlight on the False Claims Act: Wartime Suspension of Limitations Act Suspends Statute of Limitations in False Claims Act Cases

The False Claims Act (FCA), which allows both the government and whistleblowers to seek treble damages for claims of civil fraud on the United States, is a powerful tool. In the past two years, the government has aggressively used the FCA to target financial institutions for claims of reckless lending and improper servicing. (e.g. FCA, FHA Lending, and US v. Deutsche Bank).  As events leading to the financial crisis have approached – and in some cases exceeded – the FCA’s statute of limitations, financial institutions have increasingly responded to such claims by arguing that the government did not assert them in a timely manner.

A recent Fourth Circuit decision interpreting the Wartime Suspension of Limitations Act (WSLA), an obscure act first enacted during World War II, however, threatens to make it significantly more difficult for financial institutions to assert a statute of limitations defense to FCA claims.  The case, United States ex rel. Carter v. Halliburton, came before the Fourth Circuit after a lower court dismissed an FCA lawsuit brought against Halliburton and related entities (collectively “KBR”) as barred by the FCA’s six-year statute of limitations.  In a critical decision, the Fourth Circuit reversed the dismissal on the grounds that the FCA’s statute of limitations was tolled by the WSLA. Read more…