Discovery Conference Attendees Warned of Common Consumer Lending Compliance Hazards

on "October 18, 2016 11:57 am"

CUNA Mutual Group’s Stritzke, Otsuka Discuss Pitfalls Related to MLA, TCPA, Collections

Credit unions face numerous regulatory pitfalls in the consumer lending process, but Discovery Conference attendees were advised to be particularly mindful of requirements of the Military Lending Act, the Telephone Consumer Protection Act, and litigation trends related to collection letters.

CUNA Mutual Group’s Andrea Stritzke, director, product management, and Ken Otsuka, senior risk management consultant, broke down the key regulatory hazards of each and offered compliance tips during a Discovery Conference breakout session Tuesday.

Sweeping changes to the MLA by the Department of Defense took effect Oct. 3, 2016 to further protect U.S. service men and women from predatory credit practices. “The MLA has existed since 2007, but credit unions generally haven’t been concerned, because they didn’t offer the types of loans covered by the Act,” Stritzke said. “They need to pay attention now, because the DOD recently expanded the scope of the MLA to cover more types of consumer credit commonly offered by credit unions.”

In addition to limiting the Military Annual Percentage Rate (MAPR) on a covered loan to 36 percent, Stritzke said the definition of “consumer credit” under the MLA has been expanded to cover many of the same types of credit required under Reg Z, with some exceptions. Credit cards will be covered by the MLA Oct. 3, 2017.

“Once you determine if the credit type is covered, you must determine whether the borrower is covered and protected by the MLA,” she said.

The DOD issued interpretative guidance, but many issues are still not clear under the MLA, Stritzke said. She recommended continuing to watch for MLA developments as credit unions execute their implementation plans.

The TCPA also poses compliance traps throughout the loan process, especially when credit unions contact a member’s cell phone for advertising, telemarketing, or certain aspects of debt collection, Stritzke said. Adopted by the Federal Communications Commission in 1991, the TCPA addresses unsolicited telephone calls and text messages to wireless telephone numbers and residential landlines.

“With heightened litigation on TCPA violations, credit unions should understand the TCPA requirements and ensure compliance to minimize the risk of litigation, which could result in significant penalties,” Otsuka said.

Under the TCPA, credit unions are required to obtain certain types of consent depending on the message and the method of contact.

Otsuka wrapped up the lending compliance pitfalls session by discussing issues with collection letters, specifically the required notices for handling repossessed collateral. Uniform Commercial Code (UCC) laws require credit unions to send two notices - a Notice of Disposition, which informs the member the credit union has repossessed the collateral and intends to sell it, and a Notice of Deficiency, which informs the member the collateral has been sold and the member is obligated to pay the deficiency balance.

Credit unions are facing high-dollar litigation because these notices are not meeting UCC requirements, including state variations. Otsuka suggested credit unions have their legal counsel review the notices and get a written opinion that clearly indicates whether the Notice of Disposition and Notice of Deficiency are compliant.

“Use the UCC’s safe harbor version of the Notice of Disposition which has been adopted by most states. Some states, such as California, may have additional notice requirements, so be sure to check specific state UCC laws. And finally, train your lending and collections staff on completing the notices, and periodically audit the notices to confirm compliance,” Otsuka said.

To learn more, watch Strizke’s and Otsuka’s Discovery Conference breakout session, “Ask the Experts: Three Biggest Pitfalls in Your Consumer Lending Process,” on-demand.

The Discovery Conference is an annual, web-based event sponsored by CUNA Mutual Group. It attracts a national and international credit union audience of more than 1,300. Content is geared toward credit union CEOs and senior leadership teams, and is available on-demand at no cost.