Open-End Lines of Credit Under the New HMDA Rules

I wrote previously about the new HMDA rules, and how they are changing our vocabulary a bit. The new vocabulary includes new, broader definition of what’s included in HMDA, and that’s how it’s expanding the scope of HMDA. Some loans that were previously not covered by HMDA now are covered, such as HELOCs.

Here’s a quick refresher/reference of what’s covered under the old and new rules:

  • Old HMDA: Home purchase loans, home improvement loans, and refinancings.
  • New HMDA: “Covered loans,” meaning closed-end mortgage loans and open-end lines of credit, not otherwise exempt.

Let’s look at the open-end lines of credit definition because it is a bit clunky and awkward. “Open-end lines of credit” have their own special meaning under the new HMDA rules, and the rules refer to and semi-incorporate the definition of “open-end credit” in Reg. Z (TILA).

Under HMDA, an open-end line of credit is an extension of credit that:

  1. Is secured by a lien on a dwelling, and
  2. Is an open-end credit plan as defined under Reg. Z, but without regard to whether the credit is
    1. consumer credit,
    2. extended by a creditor, or
    3. extended to a consumer.

(12 CFR § 1003.2(o))

Just looking at that definition requires some mental gymnastics, not to mention simultaneous references to two different regulations, just to determine whether or not a loan is HMDA reportable or not. So I’m going to try to combine the rules for a slightly simpler, easier to reference rule. But first, what’s an “open-end credit” plan under Reg. Z?

Under Reg. Z, “open-end credit” means consumer credit extended by a creditor under a plan which:

  1. The creditor reasonably contemplates repeated transactions;
  2. The creditor may impose finance charges on an outstanding balance; and
  3. The credit extended to the consumer during the term of the plan (up to a limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.

(12 CFR § 1026.2(a)(20).

Reg. Z and HMDA have their own distinct definitions for terms, hence the part about disregarding the Reg. Z definitions of “consumer credit,” “creditor,” and “consumer.” So HMDA, in the final part of its definition, is trying to a Reg. Z definition without all the other Reg. Z terminology as well.


But you can essentially substitute “consumer credit” for just “credit,” and “creditor” for “financial institution,” and “consumer” with “applicant” and plug it back into the HMDA definition for open-end line of credit.

So to put it together into one HMDA rule, for HMDA an open-end line of credit is an extension of credit that:

  1. Is secured by a lien on a dwelling, and
  2. Is credit extended by a financial institution which,
    1. The institution reasonably contemplates repeated transactions;
    2. The institution may impose finance charges on an outstanding balance; and
    3. The credit extended to the applicant during the term of the plan (up to a limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.

Some final notes: I didn’t go into the first part of the HMDA definition because it’s fairly self-explanatory, but it’s very important and distinguishes between a HMDA reportable line of credit and a non-reportable line. This goes to the new dwelling-secured standard of HMDA.

Also the last requirement for the credit being generally available during the term of the plan means the plan must have a reusable line, even if it has a termination date. (See 12 CFR § 1026.2(a)(20)—Official Interpretation 5). This means the total credit lent under the plan is theoretically unlimited for the term of the plan as long as the borrower continues to repay the credit used.

Finally, for real estate, open-end real estate mortgages must be evaluated independently under the definition regardless of what it’s called in the industry. “The fact that a particular plan is called an open-end real estate mortgage, for example, does not, by itself, mean that it is open-end credit under the regulation.” (See 12 CFR § 1026.2(a)(20)—Official Interpretation 7.) In other words, don’t be fooled by a name; just because something may be called an “open-end mortgage” doesn’t meet it necessarily meets the regulatory definition for open-end credit.

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

Covered Loans Under HMDA

The old HMDA rules required financial institutions to report on applications, originations, and purchases of home purchase loans, home improvement loans, and refinancings. The new rules, however, replaces the “home purchase,” “home improvement,” and “refinancing” language with “covered loans.” Whether a transaction is a “covered loan” has become much more complicated though.

A “covered loan” is

  1. a closed-end mortgage loan, or
  2. an open-end line of credit, and
  3. not an excluded transaction.

Both closed-end mortgage loans and open-end lines of credit need to be secured by a lien on dwelling, not just any old open-end line of credit. The new HMDA rules give “open-end line of credit” its own unique definition, so don’t be confused. I’m also going to refer to both types of credit as just “a loan” in the following list of excluded transactions:

Excluded Transactions (12 CFR § 1003.3(c)(1)-(12))

  1. A loan purchased by a financial institution acting in a fiduciary capacity (such as as a trustee)
  2. A loan secured by a lien on unimproved land;
  3. Temporary financing
  4. Purchase of an interest in a pool of loans;
  5. The purchase of servicing rights;
  6. The purchase of loans as part of a merger or acquisition (or as part of the purchase of assets and liabilities of a branch office)
  7. A loan or application for a loan for under $500;
  8. The purchase of a partial interest in a loan;
  9. A loan used primarily for agricultural purposes;
  10. A loan used primarily for business purposes
    1. UNLESS it is a home improvement loan, home purchase loan, or a refinancing, as determined by the “primary purpose” test of Regulation Z (TILA).
  11. A closed-end mortgage loan originated by a financial institution that originated fewer than 25 closed-end mortgage loans in each of the two preceding calendar years; OR
  12. An open-end line of credit originated by a financial institution that originated fewer than 100 open-end lines of credit in in each of the two preceding calendar years.

A Closer Look at #11 and #12

Numbers 11 and 12 are important for when you determine whether you need to report certain loans. They come up again when you’re looking at whether you’re a “financial institution” that needs to report under HMDA. (Section 1003.2(g)). One part of the test of being a reporting financial institution for HMDA is you need to have originated either the 25 closed-end or 100 open-end loans in the previous two calendar years. But, once you’ve figured out whether you’re a financial institution that needs to report, when looking at which loans you report, you only report the type loans above the “25 or 100 for 2 years” test.

For example, if you originate 200 and 250 open-end lines of credit for the last 2 years, but only originated 20 and 15 closed-end mortgages, then you would only report the information for the open-end lines and not the closed-end.

And if you’re asking yourself “why?” or trying to figure out the logic of it all, it’s because of #11 and 12 above. The closed-end mortgages in that example are a excluded transactions under section 1003.3(c)(12), and therefore they are not a “covered loan.”

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

Identifying Your Loans Under the New HMDA Rules

The Universal Loan Identifier

You don’t nearly triple the amount of reportable data by keeping things simple. The new HMDA rules expand on nearly everything that needs to be reported on the LAR, including how loans are identified for reporting purposes. The current rules require an “identifying number for the loan or loan application” and each institution “must ensure that each identifying number is unique within the institution.” (12 CFR 1003.4(a)(1) and Comment 4). The new rules though require a “universal loan identifier (ULI),” which has its own specific requirements now.

There are now 3 parts to a ULI:

  1. A Legal Entity Identifier (LEI);
  2. A 23 character identifier that’s “unique within the financial institution;” and
  3. A 2 character check digit.

The first part is likely to be the most confusing and newest, so let’s break it down.

The Legal Entity Identifier

History and Regulation

The LEI is a unique identifier for financial institutions internationally, like an international social security number for banks. It was first introduced around the beginning of 2013 as part of an international effort with the G20 nations as a reaction to the financial crisis. It established the LEI Regulatory Oversight Committee (ROC), which helped establish the Global LEI Foundation (GLEIF), whose goal was to help oversee the issuing of LEIs. The GLEIF accredit Local Operating Units (LOUs), which are the organizations that are authorized to issue LEIs. But before GLEIF was established, the ROC was endorsing organizations who were also issuing LEIs, and these are called “LEI ROC-Endorsed pre-LOU.” These organizations can be international or national; in fact, at the moment there does not appear to be any organization issuing LEIs that is based in the United States. They also have multiple purposes and functions; for example, the London Stock Exchange is a pre-LOU LEI issuer.

That history is to put into context the following regulatory language: Section 1003.4(a)(1)(i)(A)(1) and (2) requires the LEI be issued by “ a utility endorsed by the LEI Regulatory Oversight Committee” or “a utility endorsed or otherwise governed by the Global LEI Foundation (GLEIF) (or any successor of the GLEIF) after the GLEIF assumes operational governance of the global LEI system.” Or, in other words, a “LEI ROC-Endorsed pre-LOU” or a LOU.

There are about 30 total pre-LOUs and LOUs, and the list can be found here: As of October 2015, if an institution wishes to issue LEIs, they must be a GLEIF-accredited LOU.

Getting a LEI

Financial institutions need to register to receive an LEI. There is a lot of discretion on which pre-LOU or LOU to register with, though when selecting where to register to receive an LEI, take into account such things as language, currency, and time zones. Each LEI charges its own fees, usually a larger initial fee (about $200 at the moment) and annual re-registration fees (about $100).

After selecting an organization and applying, the LOU needs to collect a “minimum set of reference data,” such as the official name of the entity, headquarters address, and the address of legal formation to name a few. The LOU is required to check each entry against reliable sources such as official public records to verify the provided information.

The wait time can vary depending on the LOU.

I reached out to the GLEIF to ask about LEI issuers in the US, and the three biggest LEI issuers in the US are:

  1. Business Entity Data B.V. ( (Netherlands)
  2. London Stock Exchange ( (U.K.)
  3. WM Datenservice ( (Germany)

The LEIs and associated data submitted to the LOU about the institution are public record, and made available to regulations and the public continuously and for free.

Portability of LEIs

The good news is that LEIs can be transferred or “ported” from one LOU to another. Like keeping your cell phone number when switching carriers, once an organization is given an LEI, it will not change depending on which LOU is maintaining it. This means you won’t be stuck with your original LEI issuing LOU. So you can register now with the London Stock Exchange, and later transfer it to a more local LOU if a new one is established.

The upcoming changes to HMDA will take some time to really understand and get used to, but one big step is understanding and preparing for the new LEI requirement. Getting the issue of obtaining an LEI down is likely something that is better handled sooner rather than later though, as applications are sure to spike soon. Best of luck!

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

The UCC And Mortgages

Did you know that the Uniform Commercial Code applies to mortgages? For example, did you know that the Note, or promissory note, may or may not be governed under Article 3 as a “negotiable instrument” depending on how the Note is worded? Or that the mortgage is just a form of a security interest under Article 9, and does not actually create the debt but just gives the lender a security interest in the real estate? (The Note creates the debt, by the way.) In fact, as far as I can tell, “mortgage” is only defined in the Massachusetts statutes in the UCC chapter, in Article 9. M.G.L., ch. 106, sec. 9-102(55): “(55) ”Mortgage” means a consensual interest in real property, including fixtures, which secures payment or performance of an obligation.” (

I think the fact that the UCC rules are always in the background often doesn’t get a lot of recognition or respect in mortgage lending, probably because mortgage lending has been given so many of its own specific laws and regulations which override the UCC’s general rules. But the UCC still has a very important role in mortgage lending, often without individuals making the loans realizing it.

You especially see this with fixtures. Fixtures blur the line between real property and goods, so the rules about them can be tricky when seeing how they stand next to mortgages. To make it worse, whether or not something is a fixture is not an easy question to answer. For example, a 45,000 pound machine bolted in place and connected to a power line has been considered not a fixture by one court (In re Park Corrugated Box Corp., 249 F. Supp. 56, 58-59 (D.N.J. 1966)), while a mobile home was considered a fixture in another court (George v. Commercial Credit Corp., 440 F.2d 551, 554 (7th Cir. 1971)). The best a creditor can do is try to make an educated guess about whether something would be a fixture, and protect themselves as much as they can either way.

Anyway, the point is that it’s often overlooked that among all the other rules in play regarding mortgages and lending, ECOA, HMDA, TILA, RESPA, and everything else, the UCC rules are also lurking in the background, subtly guiding and informing how lenders lend.

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

Understanding Call Recording Compliance

An NSCCA member submitted a question on call recording to be researched and answered by Spillane Consulting for this blog. (That’s what we’re here for!)

This member is about to start recording phone calls between consumers and the collections department. They had a specific question related to one of the compliance requirements, which we WILL get into. But first a background on this issue for everyone else.

In General: Pros and Cons of Call Recording

For companies trying to prove compliance and to monitor customer service levels, call recording is an enticing option. It can be useful in defending against a lawsuit or regulatory action (or on the offensive in a bankruptcy or foreclosure proceeding).

Of course, the sword is double-edged … call recordings can be used against you. Sometimes call recording makes it harder to make contact with a consumer because of the disclosure sometime required to begin the conversation, i.e. “Hello, this call may be recorded … *click.”

Compliance Issue: Massachusetts Wiretap Law

If your bank decides call recording is a great idea, make sure to comply with the Massachusetts law against secretly recording conversations. This Massachusetts law is stricter than most states. In most states, a company can record conversations with consumers without consent (there is a Federal law against secret recordings, but it only prohibits a 3rd party secretly recording another conversation). But some states, like California and Massachusetts, a stricter rule applies that requires both parties’ consent. MA Chapter 272, Section 99. These “two-party” or “dual consent” states prohibit call recording of any private conversation without both parties consenting to the recording. In these states, a bank that wants to record conversations with consumers must disclose the recording at the beginning of the call.

The two-party consent rule recently made headlines in California. Wells Fargo was fined $8.5 million for failing to disclose that calls were recorded. There’s a similar judgment against  And sports fans might remember the recording of Donald Sterling’s racist remarks that led to his downfall as owner of the Los Angeles Clippers.

Specific Question of the Day

So far doesn’t sound too difficult, right? Just inform consumers up front that the call will be recorded. Well one NSCCA member is struggling with whether this is strictly required with every single person spoken to, as sometimes a single call will require speaking to multiple persons before getting to the actual consumer.  So do we need to give this disclosure to absolutely every person who answers the phone? Sometimes our callers get routed from person to person, secretary to administrator, department to department, before being able to speak to the actual person they’re trying to contact in the first place. Do we need to repeat “This call may be recorded” every single time?

Receptionist: Hello, this is Smith Paper Company.
Bank: This call is being recorded…. Hi, this is Jim from ABC Bank, may I speak to Jane Consumer?
Receptionist: I think Jane is downstairs in shipping, let me transfer you.
Shipping Department:  Hello?
Bank: This call is being recorded…. Hi, this is Jim from ABC Bank, am I speaking with Jane Consumer?
Shipping Department: No, sorry. Jane is in her office, let me transfer you.
Jane’s Office: Hello?
Bank: This call is being recorded…. Hi, this is Jim from ABC Bank, am I speaking with Jane Consumer?
Jane’s Office: No, sorry. I’m Jane’s executive assistant. Jane’s off today, would you like to leave a message?

And on it goes …. You see the annoyance? Wouldn’t it make more sense just to wait and give the disclosure to Jane Consumer after confirming she was on the phone?

Specific Answer of the Day

In short, Yes, the disclosure should be given to every person. But good news, it can be preceded by an introductory greeting. Like this: “Hi, my name is Jim from ABC Bank. This call is being recorded. May I speak to Jane Consumer”?

Now, some companies may choose to push the boundaries and delay disclosure until confirming the identity of the consumer. That, of course, would be even better.  But we do not recommend this and I’ll explain why below.

“Introductory Greeting” Exception.

Instead of starting every single call off with a robotic “This call is being recorded.” disclosure, best practice is to permit an introductory greeting followed immediately by the disclosure. The wiretap law prohibits recording a conversation. Is it a conversation before the other party even gets a chance to respond? The law doesn’t allow this expressly, but the California consent order against Wells Fargo makes this clear (and there’s no reason to think the same interpretation would not be adopted here):

“Wells Fargo … shall make a clear, conspicuous, and accurate disclosure (the ‘Recorded Call Disclosure’) to any such consumer of the fact of recording, and to make such disclosure immediately at the beginning of any such communication. The  Recorded Call Disclosure may be preceded by an introductory greeting that identifies the caller and entity on whose behalf the call is being made.

So this will help call recorders a little. Remember the disclosure is still given before the other party has a chance to respond. But can we go even further and delay giving the disclosure until confirming that we’re speaking to the correct person.

Disclosure Only to Right Person

In the example above with Jim, the receptionist, the shipping department, the secretary, and Jane, can Jim avoid telling everyone that the call was being recorded except for Jane? Is it permissible for him to wait and only Jane that the call is being recorded?

Some institutions are acting as if this is the case. Maybe, under these specific facts, this is a legitimate risk-based decision. After all, why on earth would these people complain or consider a lawsuit against ABC Bank? They had meaningless conversations of under 5 seconds.

While I understand the logic, I do not recommend this approach. The problem is that you do not know in advance when you’re speaking to the consumer. Therefore, if you delay the disclosure until confirming identity, there will be many cases where substantive pieces of conversation are spoken before the disclosure occurs. Imagine these scenarios where the consumer could reveal something significant before the disclosure was given:

Bank: Hello this is Jim from ABC Bank. May I speak to Jane Consumer?
Jane: Stop calling me at work, I’m not paying your stupid car loan!
Bank: Hello, this is Jim from ABC Bank. May I speak to Jane Consumer?
Jane: (pretending to be someone else) Nooo, I’m sorry you have the wrong number. Please don’t call here again.

So here you have two conversations that you might very want to use later with your defense against a complaint or in a collection proceeding. But you have two upset consumers. And, worse yet, you have two consumers with legitimate arguments that ABC Bank violated the Massachusetts law against secret recording.

So, to avoid complications like this, we recommend giving the disclosure up-front (after an introductory greeting) with every person spoken to.

Final Note:  I realize a simple fix would be for the call recording software to be turned on only after the disclosure is given. While I suppose that might lead to other problems (employees forgetting to turn on, for example), in any case it doesn’t appear that most technological solutions available offer this option.

 And that’s all, folks. Thanks for submitting the question to us for research!

Ben Giumarra, Esquire
Director of Regulatory Affairs
501 John Mahar Highway, Suite 101
Braintree, MA  02184


Understanding and Disclosing the Homestead Declaration

Filing a Declaration of Homestead is one of those things that you might know a little about and recognize, but not really understand fully what it is and how it works. It can also be an additional recording fee required to be disclosed, and is subject to 10% tolerance, which means if your deed and mortgage recording fees equal $300, and a $35 homestead declaration fee wasn’t disclosed on the LE, then you’d be $5 over tolerance. It’s useful then to understand what the homestead declaration is, how it works, and who is qualified to file one.

Background:  In 2010, MA updated the Homestead Act (Mass. Gen. Laws, Ch. 188) to give an automatic homestead protection of $125,000 to an owner’s primary dwelling. Residents have the option to file a Declaration of Homestead with the Registry of Deeds in order to increase that protection up to $500,000 in a primary dwelling. The Act expanded on protections for the elderly and allow for homes held in trust to benefit from homestead protections.

How the Protection Works: The homestead protection protects equity built up in the home against some creditors. The protection is subordinate to mortgages and certain liens on the property though, such federal, state, and local taxes and liens. A creditor who tries to make an attachment to a home (such as by court order) in violation of the homestead can get that attachment avoided.

It also offers substantial protection in bankruptcy, and is often what enables bankruptcy debtors to stay in their home. A bankrupcty debtor who has built up equity in his or her home but has a lot of unsecured debt can keep up to $500,000 of their home’s equity out of the bankruptcy estate if they file a Declaration of Homestead properly (and up to $125,000 automatically under the new law).

Qualifications:  A Declaration of Homestead may be filed by 1 or more owners who occupy or intend to occupy a home as a primary residence. It ONLY applies to primary residences. The homestead protection applies to the owners and family members who occupy a home as a primary residence. A homestead is terminated if the home is conveyed to a non-family member though, so even if a Declaration of Homestead was previously filed on the property, the new owner will still need to file a new declaration.

It’s optional whether or not a borrower will elect to file one though, so it can be difficult for a lender or broker issuing the Loan Estimate to determine whether to disclose the recording fee for the homestead. The recording fee for a Declaration of Homestead is $35 (, so my $5 out of tolerance example is not a remote possibility. But the cost is so minimal compared to the potentially $375,000 extra protection it offers, that you could probably assume that an applicant who qualifies for filing the Declaration will do so at closing. However, there is no requirement that the Declaration be filed at closing, though there is a disclosure requirement about the homestead the settlement agent needs to provide. Thus if you have a reason to believe the borrower will opt out of filing the Declaration, then that’s fine. But if you are unsure at the LE stage, it is better to include it than not.


Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

The Right of Rescission and Purchasing New Interests

The right of rescission gives consumers the right to rescind, or cancel, certain transactions involving a consumer’s principal dwelling. The rule is nuanced and detailed though, which can make it confusing to apply in some situations.

Here’s a scenario to look at the right of rescission rules: Tenant A owns 50% of a property, and Tenant B owns the other 50%. Tenant A dies, and now Tenant B wishes to purchase the other 50% interest in the property from Tenant A’s estate, and at the same time refinance the original existing mortgage. How does the right of rescission apply to this transaction?

The right of rescission applies in a credit transaction where the consumer acquires or retains a security interest in a principal dwelling, subject to some exemptions. Generally, the right of rescission doesn’t apply to the initial purchase of the property. (The rule exempts “residential mortgage transactions” which is defined as the financing of the “acquisition or initial construction” of a dwelling.)

However, the right of rescission applies to “the addition to an existing obligation of a security interest in a consumer’s principal dwelling,” but it is limited to “only the addition of the security interest and not the existing obligation.” This applies here, where the borrower already has an existing interest in the property and is looking to just add to that interest. Therefore the right of rescission applies to the new credit to acquire the new 50% interest.

But it’s not just the purchase of the other half interest that is involved here; the borrower also wants to refinance the existing loan. How does the right of rescission rule affect that part?

One exemption to the right of rescission rules goes to the refinancing or consolidation of credit already extended by the same creditor and already secured by the consumer’s principal dwelling. But this only applies to the extent it covers the outstanding principal balance, and it doesn’t cover any new credit extended beyond the outstanding balance. Or, in other words, the portion of the loan that is being refinanced is not subject to the right of rescission rule, but the new credit being extended to purchase the new interest in the property is subject to the right of rescission.

So if Tenant B’s remaining balance on his loan to secure his 50% property interest was $150,000, and he now wants a $350,000 loan to purchase the other 50% interest for $200,000 and refinance his $150,000 loan, then the right of rescission applies to the $200,000 new credit and not the $150,000 loan. Note this exemption only applies if the borrower is attempting to refinance with the original creditor though. If the borrower is getting a loan from a new creditor which would pay off the existing obligation, then the whole loan is subject to the right of rescission rule again.

What are the effects of a consumer exercising their rescission rights? The full effects could take their own post, but one thing to remember is that the right of rescission rules focus heavily on the security interest a creditor takes in property and the creditor’s ability to encumber a consumer’s interest in property.

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)


Brief Overview of the Military Lending Act

Well, it’s been 2 month’s since the Military Lending Act took effect. If you’re institution hasn’t determined whether you’re ready and compliant yet, contact me because you’ve got some catching up to do. At least the credit card provisions haven’t kicked in yet, so if you offer credit cards you still have time for those.

It’s overdue then to give a brief overview of the act, including what I think are some helpful ways of identifying products that might fall under its umbrella.

One Sentence Summary

“A lending institution cannot impose a Military Annual Percentage Rate (MAPR) above 36 percent on any non-exempt consumer credit extended to a Covered Borrower.”

This is my one sentence summary that breaks down the big three elements that most institutions should be primarily focused on.

Non-Exempt Consumer Credit

Consumer credit must comply with MLA guidelines if: 1) it charges a finance charge (as defined under TILA), or 2) it is payable in installment payments of more than 4 installments, and 3) is not an exempt transaction.

Exempt transactions are:

  1. Those not covered under TILA (12 CFR § 1026.3) or state law;
  2. Purchase-money financing for vehicles;
  3. Purchase-money financing for personal property;
  4. Residential mortgage credit transactions, including purchases, refinances, construction loans, HELOCS, HE Loans, and reverse mortgages;

Technically the regulation mentions a fifth, which is any transaction not involving a covered borrower identified through the safe harbor method. But that logic is a bit too circular for me, so I consider the question of if a consumer is a covered borrower as its own separate step.

Cover Borrowers, Defined and Identified

A “covered borrower” under the MLA is a full-time active duty Service member (Armed Forces, Coast Guard, National Guard, and Reserve) who are under a call or order to serve for more than 30 days. It also includes the service member’s dependents, defined as a spouse, child under 21, parents or in-laws residing with and depending on the Service member for support, and unmarried people who the Service member has custody.

A covered borrower is only a covered borrower at the time of the transaction, and only remains a covered borrower during the service period.

Creditors are free to determine whether a consumer is a covered borrower however they wish. BUT there are two safe harbor methods of verifying a consumer’s status as a covered borrower:

  1. Through the Department of Defense’s database, located here:
  2. Through the credit reporting agencies, who have all updated their reports to reflect whether or not an applicant is an active service member.

Using one of those two methods, and documenting the result, “conclusively determines” the issue of whether an applicant is a covered borrower under the MLA.

Military Annual Percentage Rate (MAPR)

The MLA also adds new fees to be considered finance charges when calculating the MAPR. These fees include:

  1. Premiums or fees for credit insurance;
  2. Fees for a debt cancellation contract or debt suspension agreement;
  3. Fees for a credit-related ancillary product sold in connection to the credit transaction or account;
  4. Application fees (with some exceptions);
  5. Participation fees;

When you have a non-exempt transaction to a covered borrower, then you need to calculate the MAPR to include the new finance charges with the standard TILA finance charges also. The MLA then caps the rate you can charge a covered member at 36%. If calculating the MAPR with all the fees, new and old, results in a MAPR above 36%, then the creditor has the option of waiving fees and charges above that limit to comply with the MLA cap.

That’s just a brief overview of the basic elements of the MLA. It does not include disclosure requirements, limited terms in agreements, penalties, or other aspects of the MLA. The MLA is already in effect though, so if you’re not sure if you’re compliant with it yet then there is no time to waste.


Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

Curing Defects on Closing Disclosures

Mistakes happen. Things change. Life is unpredictable.

Sometimes after closing things happen that make the CD the borrower received to be no longer accurate, or you’ll notice a mistake was made and the borrower paid a higher fee than he or she should have.

Here’s how to fix those mistakes.

Change Due to Events Occurring after Consummation

This is probably the more well-known rule. If an event occurs in connection with a settlement within 30-days after closing, and the event causes the consumer to actually pay a different amount than what is disclosed on the CD, then the creditor needs to place in the mail corrected CDs no later than 30-days after discovering the event occurred.

But if the event causes the consumer to pay an amount above tolerance, then see the 60-day refund rule.

Changes Due to Clerical Errors

Non-numeric clerical errors can be cured by placing corrected CDs in the mail no later than 60 days after closing.

60-Day Refund Rule

If, within 60 days after closing, it is discovered that the consumer actually paid more than what was disclosed on the LE, or more than what was allowed under the tolerance rules, then the creditor must refund the excess amount with a revised closing disclosure.

So, for example, if the consumer pays an extra $30, $25, $25, and $10 over the disclosed LE fees on four itemized services subject to 0% tolerance, then the excess $90 must be refunded within 60 days of the closing. If the consumer also pays $1,190 on a service the LE estimated at $1,000 subject to 10% tolerance,* then the creditor must refund the excess $90 there as well (for a total of $180) no later than 60 days after the closing.

Don’t forget to take advantage of these rules to fix any mistakes discovered. The costs of fixing and refunding will be much less than if you are forced to do it by a regulator.

* The 10% tolerance means the consumer can pay up to $1,100 on a fee estimated at $1,000 on the LE. Thus, the extra $90.


Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)

Understanding Intent to Proceed

Here’s a short cheat sheet on intent to proceed information:

Q:           Can a borrower give intent to proceed before receiving an LE?

A:            No. Section 1026.19(e)(2)(i)(A) requires the borrower to receive the disclosures before indicating an intent to proceed “with the transaction described by those disclosures.” Only after those events occurred in that order can a fee be imposed (with one exception listed below).


Q:           What fees can be imposed or received before a creditor receives an intent to proceed?

A:            Section 1026.19(e)(2)(i)(B) allows for a bona fide fee to obtain a consumer’s credit report before the consumer received the LE.


Q:           Is signing the LE considered to be intent to proceed?

A:            No. The signature lines on an LE are optional, and are only for confirming receipt of the disclosure.


Q:           What if we close the loan without ever receiving intent to proceed, isn’t intent to proceed implied?

A:            No, it must be expressly given. Comment 2 to § 1026.19(e)(2)(i)(A) states “a consumer’s silence is not indicative of intent because it cannot be documented to satisfy the requirements of § 1026.25.”


Q:           How may a consumer indicate intent to proceed?

A:            Section 1026.19(e)(2)(i)(A) lets the consumer indicate an intent to proceed in any way the consumer chooses, unless the creditor requires a particular manner. The creditor must document the intent to proceed to satisfy the documentation requirements of § 1026.25.


Q:           Do you always need intent to proceed, even if you aren’t charging up front fees?

A:            Yes, Comment 5 to § 1026.19(e)(2)(i)(A) states “a fee is ‘imposed by’ a person if the person requires a consumer to provide a method for payment, even if the payment is not made at that time.”


Q:           Do you need a new intent to proceed with every new LE?

A:            No, only the initial LE.


Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2837 (fax)