By The Way
The By The Way newsletter is a great way to keep Kentucky credit unions informed of the latest updates in governmental affairs, compliance and regulations, education and training. In addition, By the Way highlights the difference credit unions are making on a daily basis.
- Save the Date: Management Conference
Credit Union News
On February 13, representatives from Members Choice Credit Union visited with their state lawmakers in Frankfort. This is an annual event for the credit union and the legislators are very appreciative that they take time to visit with them during the session. Legislators visited included Minority Floor Leader Rocky Adkins, Representative Kevin Sinnette, and Senator Robin Webb.
We are happy to announce the CUNA awards websites are ready and open for your submissions. Nominations are open from now until June 30.
Administered by the Kentucky Credit Union League & Affiliates and CUNA, the Louise Herring, Dora Maxwell and Alphonse Desjardins awards programs are a wonderful way for credit unions to showcase all the great things they do for their members and their communities.
Below you'll find a brief description of each of the programs:
Louise Herring Award
The purpose of this award is to promote credit union philosophy by formally recognizing credit unions that demonstrate in an extraordinary way the practical application of that philosophy for their members.
Dora Maxwell Award
The purpose of this award is to promote social responsibility among credit unions by formally recognizing their community service achievements.
Alphonse Desjardins Award
Alphonse Desjardins was a credit union pioneer who was instrumental in forming the Canadian and U.S. credit union movements. Besides helping to found the first credit unions in Canada and the U.S., Desjardins pioneered youth savings clubs and in-school "banks," known as caisses scolaires. This award honors leadership within the credit union movement on behalf of youth and adult financial literacy.
In an effort to streamline the submission process for our member credit unions and to reduce financial and human resources spent on the submission process, CUNA and the Leagues have collaborated to produce one standardized format and online submission process for our member credit unions.
You will automatically establish an account when you create an application to submit your first project by clicking on the designated link below. You may save your work and return to the submission site as often as needed as long as you complete and submit all parts of the project submission by the due date of June 30, 2018. State winners will advance to national competition for judging.
The 2018 session of the Southeast CUNA Management School will be held Friday, June 8, 2018 – Friday, June 15, 2018 at the University of Georgia Center for Continuing Education in Athens, GA. Registration is now open for the 2018 session; click here to register online.
Through collaboration with CUNA and Affiliates, the first SRCUS Management School was established in 1970 and has a long history of providing quality programming to credit union professionals. The two-week school was initially held at Oglethorpe University in Atlanta had an original first-year class of 30 plus students.
Since the school’s formation, it has graduated over 1,200 credit union management professionals from 21 states and the District of Columbia. The curriculum is reviewed and revised each year to continue meeting the ever-changing needs of today’s credit union professionals. The program provides a well-rounded curriculum and experiential opportunities for professional and personal growth, challenging each participant to achieve their highest potential by engaging them in learning activities that stimulate critical thinking and increase confidence. The school is currently held each year in June at the University of Georgia, Georgia Center for Continuing Education in Athens, GA.
During the three years of SRCUS, participants focus on coursework that helps develop their operational, managerial and leadership abilities. The curriculum addresses the following topics:
25th Annual CUNA Marketing & Business Development Council Conference
March 11 – 14, 2018 | Hilton San Francisco Union Square | San Francisco, CA
At CUNA Marketing & Business Development Council Conference, you and hundreds of your peers will gather to gain new ideas, high-impact strategies and powerful insights that will spark change in your credit union—and yourself.
Skateboarding Legend, Entrepreneur, Philanthropist
Authenticity Above All Else
In the world of skateboarding, nothing is held in higher esteem than authenticity. So, how does the sport’s most famous face walk the fine line between authenticity and “selling out?” Legendary skateboarder Tony Hawk walks the walk every day as he continues to be the face of the sport he loves while managing his successful business empire and award-winning charitable foundation.
April 9-12, 2018 | Westin New Orleans Canal Place | New Orleans
Gain full-spectrum lending knowledge
The lending landscape never stops changing. When you pursue a reliable and all-encompassing training opportunity for lending professionals, you'll stay ahead of these changes.
CUNA Consumer & Residential Mortgage Lending School gives you a comprehensive lending outlook. This four-day school offers a general review of the macro lending landscape along with five specific lending topics, including:
Consumer Lending Mortgage Lending Lending Compliance Lending Leadership Lending Hot Topics
You can pick and choose the sessions to best fit your needs regardless of track.
Who Should Attend?
This school is beneficial for credit union lending and compliance professionals as well as mid to high-level management and lending operations professionals.
Deadline: March 19, 2018 (Rooms may sell out before deadline.)
Real solutions for the real world.
May 8-9, 2018
Kentucky Credit Union League Office
3615 Newburg Road
Louisville, KY 40218
Educational Investment: $379
Deadline to register is March 12th.
This program is open to all affiliates of the Kentucky and Tennessee Credit Union Leagues. Program is limited to 28 participants so register now!
ULEND Academy is a lending GAME CHANGER. No more wasted hours in classes with great ideas that are hard to implement in real life! ULEND Academy is a hands-on, customized experience that propels lenders from transactional to consultative, meeting members' full financial needs. The curriculum guides lenders from foundational to advanced skill levels in all lending channels and across all stages of the loan process - origination, underwriting, and closing - with cross-selling, consultation, and compliance woven throughout.
ULEND Academy is set up as a hands-on workshop where participants will discuss, learn, and then apply. This occurs throughout the two days, so application can happen immediately. ULEND Academy graduates will walk out knowing how to use the skills and concepts learned in their daily interactions with members.
Are you ready to empower your lenders to
Who Should Attend?
EVERY lender from new to seasoned! ULEND Academy is a unique lending experience aimed at helping all lenders, from all levels and various experiences get better at what they do every day.
Plan & Prep
Structure the Loan
Present the Right Solution
Close with Purpose
For more information, please visit the ULEND Academy Webpage.
Business casual. Be sure to bring a sweater, as personal comfort levels vary.
Refunds will be issued until 15 days prior to the conference, less a $100 administration fee per person. Substitutions accepted up to 2 weeks prior. All cancellations and substitutions must be submitted in writing.
A block of rooms has been held at the Holiday Inn Express, 1921 Bishop Lane, Louisville, KY 40218. For reservations, call the hotel at 502.456.4411 and let them know you are with the Kentucky Credit Union League group.
This program was created especially for you by:
An intense focus on succeeding at managing others
March 20-21, 2018 | Kentucky Credit Union League
3615 Newburg Road
Louisville, KY 40218
Educational Investment: $239 for BOTH days!
You don’t master the art of supervision through luck, you master it with training, experience, self-learning, and staying on top of best practices. As a new manager, you must have the attitude, aptitude, skill set, confidence, persistence, and commitment to excel in this multi-tasking, challenging role. New Manager Boot Camp will help you build essential traits such as leadership, professional maturity and emotional IQ.
Fast-Paced * Information Packed * Hard Working * Results Oriented
Dynamic * Interactive * Engaging
With this in mind, we have designed a two-day, compelling, dynamic, and interactive workshop just for you! The program includes exploring the coaching and leadership skills that lay out a plan for your success as a highly effective manager.
You will find this experiential training opportunity invigorating, motivating and applicable to managing and supervising others.
This two-day program is exactly what you are looking for if your credit union strives to keep managers on the competitive edge!
You will work and learn, share and listen, and go back eager to implement and make a difference.
WHO SHOULD ATTEND
Whether you're a new or seasoned manager, you will find this experiential supervisor training invigorating, motivating and applicable to managing and supervising others. You will learn how to manage crucial conversations and challenging situations. You will master a coaching approach that encourages your staff to be engaged and accountable.
Motivating Yourself & Others
Assessing Your Supervisor Effectiveness
Excelling at Leading, Supervising & Coaching
Building Performance Plans
April 4-5, 2018 | The Castle Hotel | Orlando, Florida
Space is limited – sign up now! This informative event is designed to provide attendees with a variety of resources all in one venue. Expect discussions on ways to establish, update, and execute a robust continuity plan, including best practices in preparing for hurricanes, robberies, fire, flood, and terrorism.
Hear from Rob Burton, a principal at PreparedEx, with more than 20 years of experience preparing for and responding to crises. His leadership role involves assisting clients in designing, implementing, and evaluating crisis, emergency, security, and business continuity management programs.
A popular break out session includes an active shooter workshop led by Chad Wilbur, who has over 30 years of experience in defensive tactics. Each course attendee will learn situational awareness and four essential elements called G.E.A.R. for surviving an active shooter situation.
We will also hear from CU CEOs who have witnessed first-hand the results of tragedies, including John Hirabayashi, CEO of Community First CU in Jacksonville, FL; Erik Shaw, CEO of FivePoint CU in Texas, and Terry Phelps, SVP, Management Information Systems of Local Government FCU in North Carolina. There are several additional speakers on the program, each sharing their expertise in being prepared before, during, and after disasters. This event is open to all affiliated credit unions.
This event, which is open to credit unions from 13 southeastern states (Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Kentucky, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia) will help participants identify key strategies, products, and services needed to ensure continued business operations and prepare for any type of disaster.
Don't miss this opportunity to evaluate, improve, and update your existing business continuity plan. Register now to join us in Orlando, FL, April 4-5. Room rates will be discounted to $145 through March 5. For more information, contact Simi Daniels or call 850-558-1024.
April 12, 2018 | Kentucky Community and Technical College System
300 North Main Street
Versailles, KY 40383
In the aftermath of the Great Recession, the Financial Accounting Standards Board (FASB) issued new guidance for estimating the allowance for loan losses (ALL). This new allowance methodology, which applies to credit unions, is commonly referred to as the Current Expected Credit Loss (CECL) model.
CECL represents the most significant change to generally accepted accounting principles (GAAP) in many years and would fundamentally change the way many credit unions will have to calculate ALL.
CECL will require allowance reserves to be established for estimated “life of loan” losses instead of the current practice of reserving for estimated losses considered probable over the next operating cycle.
While the effective date for CECL is a few years, most experts are recommending credit unions begin preparing now to change their approach for calculating their allowance to both prepare for the changes and to establish “clean data.”
This seminar will survey the process for implementing CECL, and help credit unions and examiners understand the pending changes and best practices for preparing for compliance.
“Boards that Risk”
by Jeff Rendel, Certified Speaking Professional
“Let’s get back into the business of taking risks,” said one credit union CEO as he described his petition to his board while discussing ways to grow the top line. “Our members – our owners – deserve a balance of service (read, taking risks on their behalves) and safety and soundness. We’ve become more attentive to minimizing risks than grasping opportunities.”
It’s no bombshell that boards place risk management at the tops of their agendas. Increasing regulations, enlarged governance issues, and daunting, new sets of risks (cyber, reputation, enterprise, etc.) create challenges for boards. While boards’ fiduciary requirements are significant, those obligations shouldn’t crowd out equally vital dialogue around strategy and long-term operations.
The vice chair of a statewide-FOM credit union in the Northeast shared his take on risk and a board’s responsibility: “As a board, we should ask our CEO what risks we should be taking to support our vision for the credit union and guidance for him as he designs and executes a plan. Our role is to oversee a well-managed, risk-balanced portfolio of service to our member-owners.” This vice chair is also a corporate CEO, reporting to a board that expects long-term results.
Many credit union planning sessions involve much discussion around service to members and financial measures of progress and success. But, to paraphrase many a volunteer and executive, “How do we generate more revenue with 1.49 percent loans to 800-plus FICO scoring members?” The answer is risk and risk-focused conversations begin in the boardroom. It’s an extension of service to your members and an opportunity for your CEO to deliver on your vision for your credit union.
A recent piece of financial research described how boards for publicly traded companies were more focused on short-term issues than assertive, sometimes activist, investors (2.5 times more focused, to be exact). Blame it on quarterly earnings expectations and near-term costs that come with risk-taking. But, looking closely, we see that the investors in it for “the long haul” were most interested in long-term strategic risks for substantial strategic rewards. If we look at our member-owners as those long-term strategic investors, perhaps members’ strategic interests are centered on their long-term financial returns – personally and as an owner in their cooperative.
Planning season will be upon us soon (and when is it not planning season?) and boards will be looking to contribute to and discuss the long-term direction of their credit unions. This year, as a board, ask your CEO two questions: “Are we taking enough risk?” and “Are we taking the right kinds of risk?” Then, allow your conversations to consider refinements and variations from current strategies, all the while remaining consistent with your long-term vision for your credit union.
Jeff Rendel, Certified Speaking Professional and President of Rising Above Enterprises, works with credit unions that want entrepreneurial results in leadership, sales, and strategy. Each year, he addresses and facilitates for more than 100 credit unions and their business partners.
Brown Forman ECU is pleased to announce the appointment of Joshua Williams as the new President.
Williams comes to Brown Forman with over 10 years of credit union experience. In the beginning, he worked as a teller at a Mississippi credit union with $30 million in assets and worked his way up to Vice President of Operations. In Kentucky, he worked for Navy Federal CU and opened their Radcliff branch, the most successful branch opening to-date for Navy.
For the last six years, Williams called Transcend CU (formerly Kentucky Telco) home. As a Regional Branch Manager, he consistently met and exceeded branch growth goals enabling him to gain the experience and skills he needed to lead Brown Forman ECU.
In addition, Williams has been active in local credit union initiatives through collaboration, community involvement, and serving as President of the Louisville Chapter of Credit Unions for the past 5 years.
“Credit unions and the good we do for our members and our community is my passion. I am so lucky to be able to work in this industry,” says Williams.
Valentine’s Day at Commonwealth CU
Love was in the air on Valentine’s Day at Commonwealth CU! Team members decided to go above and beyond to make sure members felt the love on this special day. Each branch baked delicious chocolate chip cookies to share with any visitor to the branch that day. To sweeten the deal, each treat was packaged in a bag with an eye-catching, custom-made Commonwealth Credit Union sticker. Every member that visited not only received a mouth-watering cookie, but also a reminder that they are the number one priority at Commonwealth CU! The goal was for members to leave Commonwealth Credit Union with full hearts and stomachs. While it may be a small gesture, it was a simple reminder to our members that Commonwealth CU is here to better their lives every day.
On February 23rd, Doe Run members had the luxury of just rolling out of bed in their pajamas and heading to the credit union. For each member who joined the “Pajama Party,” Doe Run entered the member into a pot along with $10. If the member’s name was drawn, the money in the pot would be donated to the charity of the winner’s choice.
The pajama party included pizza and drinks, a photo booth and a game of charades. The winner of the pajama party drawing made a $500 donation to Second Chance/Team KY.
Fort Knox Federal Credit Union recently expanded its team with two newly created regional manager positions. The new regional managers, Katie McDowell and Lynn Pleasant, were both promoted from within the organization and are responsible for ensuring that their assigned branches continue to provide the highest levels of service and operate efficiently for the credit union’s member-owners. This new structure within the organization will also help support branch managers and encourage individual employee growth and development.
“Working for Fort Knox Federal is truly about ‘People Helping People,’” says McDowell. “I enjoy helping people and building relationships with individuals from all backgrounds. The credit union has given me an opportunity to do that alongside co-workers who have become like family.”
McDowell previously served as Branch Manager of Fort Knox Federal’s Hodgenville branch. After gaining five years of experience working as a Credit Manager and Branch Manager for Wells Fargo, she was excited about the opportunity to come home to LaRue County and work for Fort Knox Federal in 2010. Several generations of McDowell’s family have lived in LaRue County. In fact, her grandfather was mayor in the late 1970s and owned a local business.
“My roots are very strong in LaRue County. As a child, I spent many hours ‘working’ at my grandfather’s store. This truly opened my eyes to working in the public. Building relationships with customers who frequented the store and learning great customer service at an early age has helped me so much throughout my life,” she shares.
With a passion for service, McDowell is very active in the community. She currently coaches little league and serves on several boards including the LaRue County Chamber Board, Lincoln Museum Board, and Give 270 Board. McDowell also volunteers in the local schools and is involved with the United Way, LaRue County Relay for Life and Rotary International.
Pleasant has been serving Fort Knox Federal members since 1999. She initially joined the credit union as a teller and has worked her way up throughout the organization, serving as Member Service Specialist before managing several different branches and the call center. Now, as a Regional Manager, she’ll have the opportunity to help encourage others to do the same.
“I have been very fortunate in my career to have mentors within our organization who took a personal interest in helping me with my career development,” says Pleasant. “I look forward to helping others succeed and sharing my passion for the credit union movement!”
Pleasant is active in several community organizations, including the Hardin County Chamber, Toys for Tots, Rotary International and Big Brothers/Big Sisters. She attended Elizabethtown Community & Technical College and will graduate from CUNA Executive Management School, University of Wisconsin in July of 2018.
“What I love most about Fort Knox Federal is the credit union’s commitment to helping our members in their financial lives,” shares Pleasant. “I am dedicated to our mission and to the employees that make it happen every day!”
Kentucky Employees Credit Union is hosting a #RealTalk series, a succession of free seminars and workshops for members and non-members intended to encompass traditional and non-traditional financial wellness and life skills subjects. Each 30-minute session is being made available online for those who cannot attend in-person. In addition, attendees are provided with information to help them learn basic financial skills as budgeting, improving credit and to tips on optimizing their cover letters and resumes.
The 10th Annual Run for the Gold is a 3K Fun Run/Walk in downtown Frankfort, Kentucky, held annually on St. Patrick's Day. Kentucky Employees Credit Union has been the title sponsor of this event for several years, the funds from which are raised to support the Visual and Performing Arts Program at Good Shepherd School. Around 600 runners gather in downtown Frankfort to participate in the run every year.
Service One Credit Union completed its holiday Donation Drive to benefit HOTEL INC on January 31st, 2018. Each Service One location collected personal hygiene supplies to be used for area homeless or families in need for two months, starting on 2017’s Giving Tuesday in November.
As a community-based non-profit, HOTEL INC provides local citizens in need with pathways to stable housing, community resources, building relationships, quality food, and more.
Service One’s Personal Hygiene donation drive collected full-sized personal care products to stock the shelves of HOTEL INC’s Drop-In Center, which offers laundry, shower, and computer services to the homeless.
“We are deeply passionate about supporting the community we serve,” said Rebecca Stone, Service One President/CEO. “I am honored our members and associates came together to support a very worthy organization. This community outreach is one of the ways Service One’s members and associates affirm our purpose; a better life experience…one person at a time!”
Service One members and associates showed their generosity by donating enough personal care items to overflow a shopping cart. Service One’s donation drive raised over 110 bars of soap, 87 razors, 74 toothbrushes, and 42 tubes of toothpaste, among many other items such as body wash, laundry detergent and toilet paper.
HOTEL INC is a community-based non-profit providing pathways to stable housing, community resources, building relationships, quality food, and serving its neighbors. Find out more information about HOTEL INC by visiting: hotelincbg.com.
The House voted on February 15th to pass a CUNA-backed bill that addresses threats of litigation under the Americans with Disabilities Act (ADA). The ADA Education and Reform Act of 2017 (H.R. 620) was introduced by Reps. Ted Poe. (R-Texas), Scott Peters (D-Calif.), Ami Bera (D-Calif.), Ken Calvert (R-Calif.), Jackie Speier (D-Calif.) and Mike Conaway (R-Texas).
Credit unions have been facing increasing legal threats due to confusion over how the ADA applies to website accessibility, and though the bill does not directly address threats facing credit unions, CUNA believes it is a step toward clarification.
“This bill is an important step forward in addressing other litigation threats. It will ensure those protected by the ADA will continue to be protected but will take the right steps to curb predatory litigation that harms all consumers,” said CUNA President/CEO Jim Nussle. “CUNA is increasing our engagement with both legislators and the Department of Justice to see a solution that would protect credit unions and the members they serve from increasing threats of predatory litigation.”
During the debate, Poe and Rep. Rob Woodall (R-Georgia) engaged in a colloquy on credit unions' need for certainty on how the ADA applies to websites.
"Because of this ambiguity, these small businesses are in a bind," Woodall said. "They are being sued as if they are violating the law, but they have no framework for figuring out how to comply with the law or even if their websites are subject to the law."
Woodall, who pledged to work with credit unions to find a solution, asked Poe to continue working with him and others to encourage the House Judiciary Committee to take a serious look at the issue.
"This is something that the committee will continue to work with the Justice Department and stakeholders," Poe said.
During the colloquy, Poe also referred to the letter signed by 61 members of Congress urging the Department of Justice to work on a solution.
CUNA has a number of compliance resources available for credit unions facing ADA website accessibility uncertainty.
CUNA Analyzing NCUA’s Plan for Stabilization Fund Distributions
The board unanimously voted to declare a distribution in the form of a dividend in the amount of $735.7 million for the year ending Dec. 31, 2017. The board estimates this dividend will be paid in the third quarter of 2018.
“We thank NCUA for its work to ensure stabilization fund distributions start getting to credit unions in 2018. As the only national trade association that advocated for distributions to start this year, CUNA and the leagues were instrumental in getting credit unions those funds, which can be put to work on behalf of members,” said CUNA President/CEO Jim Nussle.
CUNA supports a transparent and equitable method for repaying credit unions and outlined a potential methodology for NCUA in its September comment letter on the proposed closure.
CUNA supported a temporary increase of four basis points in the fund Normal Operating Level (NOL) while the share insurance fund holds corporate legacy assets and continues to insist the increase that was adopted be only temporary and phased down to 1.3% by 2021 as the relative exposure of the legacy assets diminishes.
The subject of ADA and website accessibility has become a hot topic in recent months. As excerpted from this channel on InfoSight:
“ADA website accessibility presents litigation risk. By not taking the steps within the regulation to address auxiliary aids and services, a credit union is likely not to meet the guidelines that require a method to effectively communicate with individuals with disabilities. ADA allows the DOJ to assess civil penalties with amounts currently ranging from $75,000 for the first violation to $150,000 for additional violations. ADA regulations do not authorize statutory penalties for plaintiffs, however, a court has the authority to force a credit union to meet accessibility standards as part of a private lawsuit.
Neither the Act nor the existing regulation specifically addresses access to websites, however, the DOJ stands on its position that the ADA is broad enough to apply to websites. Despite not adopting a formal website accessibility standard, the DOJ continues to require a standard to avoid enforcement actions. Title III is listed as inactive on the current agenda and a final decree may not happen until sometime in 2018. Although there is no formal rule in place, credit unions remain at high risk for private litigation.”
The IRS issued IR-2018-32 advising taxpayers that in many cases they can continue to deduct interest paid on home equity loans.
In response to the many questions the agency is receiving in regard to the newly-enacted restrictions on home mortgages, the IRS is telling taxpayers that they can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labeled.
According to the agency, "The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer's home that secures the loan."
The advisory includes examples to further explain this deduction.
Although compliance with the final rule isn’t required until May 11, 2018, credit unions have had since May 11, 2016 to begin their compliance with the amendments to the Bank Secrecy Act that relate to these four core elements:
- Identification and verification of customers;
- Identification and verification of beneficial owners of legal entity customers, subject to certain exceptions;
- Development of a customer risk profile through an understanding of the nature and purpose of the customer relationship, and
- Ongoing monitoring for reporting suspicious activity, and on a risk basis, maintaining and updating customer information.
Several of these elements are part of the existing customer identification program (CIP) rules, with others implied through suspicious activity reporting (SAR) requirements. The beneficial ownership identification requirement is new and not part of any existing rule.
Bureau Adds HMDA LAR Tool and Updates Resources
The CFPB has updated its Resources for HMDA filers page, adding a 2018 LAR Formatting Tool, and making minor updates to the 2018 Filing Instructions. The 2018 LAR Formatting Tool is designed to assist financial institutions in creating an electronic file that can be submitted to the HMDA platform. It can be used for data collected in 2018 and reported next year.
The Bureau also updated its Reportable HMDA Data: A regulatory and reporting overview reference chart. If you previously downloaded the 2018 Filing Instructions and/or the reference chart, we recommend you replace them with the newer versions.
Question #2 from the DoD's August 2016 Interpretive Rule stated that a purchase-money vehicle loan (or personal property loan) would lose its exemption under the MLA rule if additional money was loaned beyond the purchase price of the vehicle or personal property that was not related to the vehicle or personal property purchase itself or if additional cash-out was provided.
Question #2 from the December 14, 2017 Amendments to the August 2016 Interpretive Rule clarifies that whether a purchase-money loan loses its exemption from the MLA Rule depends on what is financed. Generally, financing costs that are related to the collateral's purchase will not eliminate the loan's exemption from the MLA rule, but financing credit-related products will disqualify the loan from the exemption.
For example, a loan that finances the purchase of a vehicle (and is secured by that vehicle) and finances optional third-row seating or an optional GPS display within that vehicle and finances an extended warranty for service of the vehicle, is still eligible for the exemption under the MLA Rule.
Furthermore, if a covered-borrower trades in a motor vehicle with negative equity as part of the purchase of another vehicle, and the loan to purchase the second vehicle includes financing to repay the credit on the trade-in vehicle, the entire transaction is still eligible for the exemption because the trade-in of the first vehicle is expressly related to the purchase of the second vehicle.
However, a loan that finances a credit-related product or service is not eligible for the exemption. For example, a loan that includes financing for Guaranteed Auto Protection (GAP) Insurance, other credit insurance, or that provides additional cash-out financing that is unrelated to the purchase, does not qualify for the exemption and a credit union or other creditor such as an automobile dealer must comply with the MLA Rule's requirements.
The GAP and credit insurance provisions of Question #2 have been causing serious problems for credit unions, banks, automobile dealers and indirect lending programs.
The Department of Defense’s December guidance on the Military Lending Act (MLA) has impacted several credit union services, and a recent CUNA CompBlog post examines its effect on indirect dealer lending programs. The post discusses what loans must be in compliance with the MLA rule, and steps credit unions involved in indirect lending should take.
Depending on what is financed, a creditor may find a portion of its loans are exempt from the MLA, while the remainder will require compliance.
Loans that don’t finance GAP or credit insurance and that don’t provide additional cash-out financing that is unrelated to the vehicle’s purchase, are still exempt from the MLA rule.
However, a loan that finances GAP or credit insurance, or provides additional cash out financing that is unrelated to the vehicle’s purchase, will lose its exemption and the creditor must comply with the MLA rule requirements.
Credit unions involved in indirect dealer programs should:
- Make sure the automobile dealer can check the active duty status of the servicemember through either of the two safe harbor methods—checking the DoD’s database directly through the Defense Manpower Data Center or through a nationwide credit reporting agency;
- Make sure the dealer has MLA compliant loan documents, policies, and procedures;
- Make sure the dealer can calculate the military APR for the loan prior to consummation;
- Once a specific dealer is fully able to comply, audit that auto dealer’s compliance efforts on a routine basis to ensure continued compliance;
- If the automobile dealer is currently unable to fully comply with the MLA Rule’s requirements, a credit union should consider closing covered loans in-house, that sell GAP or credit insurance, until the dealer is capable of fully complying with the MLA rule; and
- Consider asking your legal counsel to review your indirect lending agreement and revising it in light of these new issues.