Q: What types of overdraft products are within the scope of 32 CFR 232.3(f) defining ‘‘consumer credit’’?
A. The MLA regulation generally directs creditors to look to provisions of TILA and its implementing regulation, Regulation Z, in determining whether a product or service is considered ‘‘consumer credit’’ for purposes of the MLA. Also, the supplementary information to the July 2015 Final Rule discusses coverage of overdraft products.
The MLA regulation defines ‘‘consumer credit’’ as credit offered or extended to a covered borrower primarily for personal, family or household purposes that is either subject to a finance charge or payable by a written agreement in more than four installments, with some exceptions. The exceptions include: Residential mortgage transactions; purchase money credit for a vehicle or personal property that is secured by the purchased vehicle or personal property; certain transactions exempt from Regulation Z (not including transactions exempt under 12 CFR 1026.29); and credit extended to non-covered borrowers consistent with 32 CFR 232.5(b). Although coverage by the MLA and the MLA regulation is not completely identical to that of TILA and Regulation Z, the July 2015 Final Rule amends the definition of consumer credit under the MLA to be more consistent with how credit is defined under TILA. The supplementary information to the July 2015 Final Rule states:
As proposed, the Department is amending its regulation so that, in general, consumer
credit covered under the MLA would be defined consistently with credit that for
decades has been subject to TILA, namely: 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.
The MLA regulation also defines ‘‘closed-end credit’’ and ‘‘open-end credit’’ with express references to the definitions of the same terms in Regulation Z. The supplementary information to the July 2015 Final Rule illustrates how to apply these standards specifically with respect to overdraft products and services. It states that consistent with Regulation Z, an overdraft line of credit with a finance charge is a covered consumer credit product when: It is offered to a covered borrower; the credit extended by the creditor is primarily for personal, family, or household purposes; it is used to pay an item that overdraws an asset account and results in a fee or charge to the covered borrower; and, the extension of credit for the item and the imposition of a fee were previously agreed upon in writing. The supplementary information further states that other types of overdraft products not pursuant to a written agreement typically are not covered consumer credit ‘‘because Regulation Z excludes from ‘finance charge’ any charge imposed by a creditor for credit extended to pay an item that overdraws an asset account and for which the borrower pays any fee or charge, unless the payment of such an item and the imposition of the fee or charge were previously agreed upon in writing.’’
Thus, whether or not a particular overdraft product or service is ‘‘consumer credit’’ under the MLA regulation depends on whether the product or service meets each element of the definition of ‘‘consumer credit’’ and whether an exception applies.