Military Lending Act (MLA) DoD Interpretive Rule – Open End Credit with No Balance

Compliance > Lending > Service Members > Military Lending Act
Q:  For open-end credit, what constitutes a situation where the MAPR cannot be calculated because there is ‘‘no balance’’ in the billing cycle under 32 CFR 232.4(c)(2)(ii)(B)?
 
A:  Section 232.4(c)(2)(ii)(B) specifically provides that for open-end credit, if the MAPR cannot be calculated in a billing cycle because there is ‘‘no balance’’ in the billing cycle, a creditor may not impose any fee or charge during that billing cycle, except for a participation fee that complies with the limitations set forth in § 232.4(c)(2)(ii)(B).  Because the provision is tied to whether the MAPR can be calculated based on whether there is a balance in the billing cycle, creditors that impose fees or charges that are excluded from the calculation of the MAPR during a particular billing cycle are not subject to the limitations in § 232.4(c)(2)(ii)(B) for that billing cycle, as there would be no MAPR to calculate whether or not there was a balance during the billing cycle.  For example, if a creditor charged a late fee for a late payment in accordance with its credit agreement with the covered borrower and in compliance with Regulation Z, the creditor may charge the fee, regardless of whether there is a balance in the billing cycle, because a late fee is not among the charges that are included in the calculation of the MAPR.
 
Furthermore, § 232.4(c)(2)(ii)(A) states that the MAPR shall be calculated following the rules set forth in 12 CFR 1026.14(c) and (d) of Regulation Z.  Thus, the reference in § 232.4(c)(2)(ii)(B) to a situation in which the MAPR cannot be calculated in a billing cycle, because there is no balance, relates solely to the situation like the one described in 12 CFR 1026.14(c)(2), which is the only provision in 12 CFR 1026.14(c) and (d) that describes the inability to calculate an effective annual percentage rate when there is no balance in the billing cycle.  12 CFR 1026.14(c)(2) discusses how to compute an effective annual percentage rate when the charge imposed during the billing cycle is or includes a minimum, fixed, or other charge not due to the application of a periodic rate, other than a charge with respect to any specific transaction during the billing cycle. Under 12 CFR 1026.14(c)(2), if there is no balance to which the charge is applicable, an effective annual percentage rate cannot be determined under the section.  Similarly, § 232.4(c)(2)(ii)(B) relates to when finance charge imposed during the billing cycle is or includes a minimum, fixed or other charge not due to the application of a periodic rate, other than a charge with respect to a specific transaction charge, and there is no balance to which the charge is applicable.
 
 
 

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