[Federal Register (Courtesy of MilitaryLoansNews.com): April 11, 2007 (Volume 72, Number 69)]

[Proposed Rules]               

[Page 18157-18170]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr11ap07-17]                         



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DEPARTMENT OF DEFENSE



Office of the Secretary



32 CFR Part 232



[DOD-2006-OS-0216]

RIN 0790-AI20



 

Limitations on Terms of Consumer Credit Extended to Service 

Members and Dependents



AGENCY: Department of Defense (DoD).



ACTION: Notice of proposed rulemaking and request for comment.



-----------------------------------------------------------------------



SUMMARY: The Department of Defense (the Department or DoD) proposes to 

amend our regulations by adding a new part to implement the consumer 

protections covered by Public Law 109-364, the John Warner National 

Defense Authorization Act for Fiscal Year 2007, section 670, 

``Limitations on Terms of Consumer Credit Extended to Service Members 

and Dependents'' (October 17, 2006). Section 670 of Public Law 109-364 

created 10 U.S.C. 987 and requires the Secretary of Defense to 

prescribe regulations to carry out the new section. The proposed 

regulation is intended to regulate the terms of consumer credit 

extended by creditors to active duty service members and their 

dependents.



DATES: Comments must be received no later than June 11, 2007.



ADDRESSES: You may submit comments, identified by docket number and or 

Regulatory Information Number (RIN) and title, by any of the following 

methods:



--Federal eRulemaking Portal: http://www.regulations.gov. Follow the 



instructions for submitting comments.

--Mail: Federal Docket Management System Office, 1160 Defense Pentagon, 

Washington, DC 20301-1160.



    Instructions: All submissions received must include the agency name 

and docket number or RIN for this Federal Register document. The 

general policy for comments and other submissions from members of the 

public is to make these submissions available for public viewing on the 

Internet at http://regulations.gov as they are received without change, 



including any personal identifiers or contact information.



FOR FURTHER INFORMATION CONTACT: Mr. George Schaefer, (703) 588-0876.



SUPPLEMENTARY INFORMATION:



I. Background



    Today's joint force combat operations require highly trained, 

experienced and motivated troops. We are fortunate that the All 

Volunteer Force of today is comprised of individuals who fit the 

stringent requirements needed for success on the battlefield. The 

military has seen a lot of changes since it became an All Volunteer 

Force in 1973. The technological advances over the ensuing 34 years 

have made remarkable transformations to the capabilities of the Armed 

Forces.

    These advances would not have been as easily attained if it were 

not for the All Volunteer Force. The members of this force have higher 

levels of aptitude, stay in the military longer, and as a consequence, 

perform better than their conscript predecessors. During the Vietnam 

era draft, 90 percent of



[[Page 18158]]



conscripts quit after their initial two-year hitch, whereas retention 

of volunteers is five-times better today--about half remain after their 

initial (four-year) military service obligation. Said another way, two 

thirds of the military was serving in its first two years of service 

prior to 1973, where as today, the number is about one-fourth.

    Today's Service members are still younger than the population as a 

whole, with 46 percent 25 years old or less. Thirty eight percent of 

these young Service members 25 years old or less are married and 21 

percent of them have children. This is compared with approximately 13 

percent of their contemporaries in the U.S. population 18 through 24 

who are married (2000 Census). The majority of recruits come to the 

military from High School, with little financial literacy education.

    The initial indoctrination provided to Service members is critical, 

providing basic requirements for their professional responsibilities 

and to successfully adjust to military life. Part of this training is 

in personal finance which is seen as an integral part of their 

responsibilities. The Department continues to provide them messages to 

save, invest and manage their money wisely throughout their career.

    Service members and their families are experiencing the sixth year 

of the Global War on Terror. The Department views the support provided 

to military families as essential to sustaining force readiness and 

military capability. From this perspective, it is not sufficient for 

the Department to train Service members on how best to use their 

financial resources--financial protections are an important part of 

fulfilling the Department's compact with Service members and their 

families.



Social Compact



    The Department of Defense (DoD) believes that assisting Service 

members with their family needs is essential to maintaining a stable, 

motivated All Volunteer Force. As part of the President's February 2001 

call to improve the quality of life for Service members and their 

families, the Department of Defense developed a social compact 

reflecting the Department's commitment to caring for their needs as a 

result of their commitment to serving the Nation. The social compact 

involved a bottom-up review of the quality-of-life support provided by 

the Department, which articulated the linkage between quality-of-life 

programs as a human capital management tool and the strategic goal of 

the Department--military readiness.

    The social compact is manifested in the programs the Department of 

Defense provides to support the quality of life of Service members and 

their families. This social compact includes personal finances as an 

integral part of their quality of life. The Department equates 

financial readiness with mission readiness. When asked in 2005 on a 

blind survey to rate the stressors in their lives, Service members (as 

a group) rated finances as a more significant stressor than 

deployments, health concerns, life events, and personal relationships. 

They only rated work and career concerns as a higher stressor in their 

lives. As part of the social compact for financial readiness, the 

Department established a strategic plan to:

     Reduce the stressors related to financial problems--the 

stress associated with out of control debt can impact the performance 

of Service members and have major negative impact on family quality of 

life.

     Increase savings--establishes personal and family goals, 

motivates Service members to control their finances and live within 

their means.

     Decrease dependence on unsecured debt--reduces the 

stressors and vulnerabilities associated with living from paycheck to 

paycheck.

     Decrease the prevalence of predatory practices--provide 

protection from financial practices that seek to deceive Service 

members or take advantage of them at a time of vulnerability.

    The Department has taken action on obtaining these outcomes by 

providing financial awareness, education and counseling programs; by 

advocating the marketplace deliver beneficial products and services; 

and by advocating for the protection for Service members and their 

families from harmful products and practices.



Financial Education



    The Military Services are expected to provide instruction and 

information to fulfill the needs of Service members and their families. 

To this end, the Department established policy in November 2004: DoD 

Instruction 1342.27, Personal Financial Management Programs for Service 

Member.

    As outlined in the Government Accountability Office (GAO) Report 

05-348, the Military Services have their own programs for training 

first-term Service members on the basics of personal finance. These 

programs vary in terms of venue and duration; however, all Military 

Service programs must cover the same core topics to the level of 

competency necessary for first term Service members to apply basic 

financial principles to everyday life situations.

    The Department has tracked the ability of Service members to pay 

their bills on time as a reflection of their competency and ability to 

apply basic financial principles. Since 2002, self reported assessments 

through survey data have shown Service members are paying better 

attention to keeping up with their monthly payments.

    To assist the Military Services in delivering financial messages, 

the Department established the Financial Readiness Campaign in May 

2003, which has gathered the support of 26 nonprofit organizations and 

Federal agencies. In the past three years, Service members have 

benefited from the materials and assistance from over 20 active 

partnerships. These partnerships are on-going and have been developed 

to allow the Military Services to choose which partner programs can 

best supplement the education, awareness and counseling services they 

provide. The materials and services are not mandatory and do not take 

the place of the programs offered by the Military Services.

    Aspects of predatory lending practices are covered as topics in 

initial financial education training and in refresher courses offered 

at the military installations. The Military Services provide over 

10,000 classes and train approximately 24 percent of the force, as well 

as nearly 20,000 family members on an annual basis. These classes are 

primarily conducted on military installations located in the United 

States.

    In addition to these classes, Financial Readiness Campaign partner 

organizations conduct over a thousand classes for informing over 60,000 

Service members and family members per year. These classes are 

primarily provided by the staff of banks and credit unions located on 

military installations (military banks and defense credit unions). 

These institutions provide these classes as part of their 

responsibilities outlined in the DoD Financial Management Regulation. 

Other organizations involved include local Credit Counseling Agencies, 

State financial regulatory agencies, the InCharge Institute and the 

NASD Foundation.

    The Military Service financial educators, along with partner 

organizations, also distributed over 200,000 brochures and pamphlets, 

with the Military Services and Federal Trade Commission the primary 

provider of these products. In addition, Military Money Magazine has 

run several



[[Page 18159]]



articles, to include two cover article editions on predatory lending. 

The free distribution of the magazine is through military commissaries, 

family support centers, other service agencies on the installation, 

residents on the military installations and home addresses off the 

installation upon request. The distribution is approximately 250,000 

per quarter.



Lending Practices Considered Predatory



    As identified in GAO Report 05-349, DOD's Tools for Curbing the Use 

and Effects of Predatory Lending Not Fully Utilized, April 2005, the 

review of practices that are considered predatory has not benefited 

from a consistent definition that has been universally applied. 

However, sources studying the issue of predatory lending have focused 

on similar characteristics. GAO Report 04-280, Federal and State 

Agencies Face Challenges in Combating Predatory Lending, January 2004, 

said the following:



    While there is no uniformly accepted definition of predatory 

lending, a number of practices are widely acknowledged to be 

predatory. These include, among other things, charging excessive 

fees and interest rates, lending without regard to borrowers' 

ability to repay, refinancing borrowers' loans repeatedly over a 

short period of time without any economic gain for the borrower, and 

committing outright fraud or deception.



    This definition has been reiterated in the FDIC Office of the 

Inspector General Audit Report 06-0111, June 2006, which stated:



    Characteristics associated with predatory lending include, but 

are not limited to (1) abusive collection actions, (2) balloon 

payments with unrealistic repayment terms, (3) equity stripping 

associated with repeat financing and excessive fees, and (4) 

excessive interest rates that may involve steering a borrower to a 

higher-cost loan.



    These same characteristics were also identified in the DoD Report 

to Congress on Predatory Lending Practices Directed at Members of the 

Armed Forces and Their Dependents, August 9, 2006:



    Predatory lending in the small loan market is generally 

considered to include one or more of the following characteristics: 

High interest rates and fees; little or no responsible underwriting; 

loan flipping or repeat renewals that ensure profit without 

significantly paying down principal; loan packing with high cost 

ancillary products whose cost is not included in computing interest 

rates; a loan structure or terms that transform these loans into the 

equivalent of highly secured transactions; fraud or deception; 

waiver of meaningful legal redress; or operation outside of state 

usury or small loan protection law or regulation. The effect of the 

practices include whether the loan terms or practices listed above 

strip earnings or savings from the borrower; place the borrower's 

key assets at undue risk; do not help the borrower resolve their 

financial shortfall; trap the borrower in a cycle of debt; and leave 

the borrower in worse financial shape than when they initially 

contacted the lender.



    While the Report to Congress provides a more expansive definition, 

there are several commonalities between the definitions listed above:

--Lending without regard of the borrowers ability to repay;

--Excessive fees and excessive interest rates;

--Balloon payments with unrealistic repayment terms;

--Wealth stripping associated with repeat rollovers/financing; and

--Fraud and deception.

    The Department started collecting information on high cost lending 

in 2004 as part of the Defense Manpower and Data Center annual surveys 

of active duty Service members. The survey requested input on payday 

loans, rent-to-own, refund anticipation loans and vehicle title loans. 

GAO Report 05-359 focused on these four practices and obtained feedback 

from ``command leaders, [Personal Financial Management] PFM program 

managers, command financial counselors, legal assistance attorneys, 

senior noncommissioned officers (pay grades E8 to E9), chaplains, and 

staff from the military relief/aid societies,'' concerning these 

practices. Input from these individuals, among others was that ``The 

extent to which active duty Service members use consumer loans 

considered to be predatory in nature and the effects of such borrowing 

are unknown, but many sources suggest that providers of such loans may 

be targeting Service members.''

    The Report to Congress reviewed five products (payday loans, 

vehicle-title loans, rent-to-own, refund anticipation loans and 

military installment loans) identified by installation-level financial 

counselors (employed as PFM program managers and employed by the 

Military Aid Societies) and legal assistance attorneys who regularly 

counsel service members on indebtedness issues. When compared against 

the common characteristics listed above, the five products reviewed in 

the Report to Congress measure up somewhat differently:



--------------------------------------------------------------------------------------------------------------------------------------------------------

                                           Without regard for                                       Unrealistic payment           Repeated rollover/

           Lending product             borrowers ability to repay  Excessive fees and interest            schedule                   refinancing

--------------------------------------------------------------------------------------------------------------------------------------------------------

Payday loan.........................  X                            X                            X                            X

Vehicle title loan..................  X                            X                            X                            X

Military installment................  ...........................  X                            ...........................  ...........................

Refund anticipation.................  ...........................  X                            ...........................  ...........................

Rent-to-own.........................  X                            X                            ...........................  ...........................

--------------------------------------------------------------------------------------------------------------------------------------------------------



    A major concern of the Department has been the debt trap some forms 

of credit can present for Service members and their families already 

burdened with debt and recurring bills. The combination of little to no 

regard for the borrower's ability to repay the loan, unrealistic 

payment schedule, high fees and interest and the opportunity to 

rollover the loan instead of repaying it, can create a cycle of debt 

for financially overburdened Service members and their families.

    Consumer groups, news media, and academics have chronicled concerns 

about payday loans and the propensity for this lending practice to 

create a cycle of debt. For example, M. Flannery and K. Smolyk state 

the following in their June 2005 FDIC Financial Research Working Paper 

No. 2005-09:



    Although as economists we find it hard to define what level of 

use is excessive, there seems little doubt that the payday advance 

as presently structured is unlikely to help people regain control of 

their finances if they start with serious problems.



    Likewise, vehicle title loans are similarly structured, with 

potentially similar results. According to a November 2005 report by the 

Consumer Federation of America, vehicle title loans are generally made 

for 30 days with high interest/fee structures (average of 295 APR). 

Limits on title loans vary by State concerning interest rates, 

duration, rollover allowances and rules on repossessing the vehicle. 

Only four states cap interest rates at less than 100% APR. In many 

states these loans can be rolled over by the borrower



[[Page 18160]]



several times if the borrower is unable to pay the principal and 

interest when due. If not paid or rolled over, many states allow the 

creditor to repossess the vehicle and in some states the borrower is 

not entitled to any portion of the proceeds of the vehicle sale. Loan 

amounts average 55 percent of the value of the vehicle.

    Rent-to-own, refund anticipation loans and some military 

installment loans present products with high fees and interest. Rent-

to-own, which is not covered as credit under the Truth-in-Lending Act 

(TILA), can represent an expensive alternative to credit when used as a 

means of purchasing an item. Military installment loans (an installment 

loan marketed primarily or exclusively to the military) can represent a 

high cost over the duration of the loan, particularly when other non 

TILA fees and charges are added to the interest rate. Tax refund 

anticipation loans also cost Service members and their families high 

fees when they can easily obtain rapid returns through electronic 

filing with the assistance of their installation legal assistance 

office.

    Refund anticipation loans (RALs) provide a limited time advantage 

(approximately 10 day reduction in the time required to receive a tax 

return) in comparison to the cost involved ($39-$100). As a 

consequence, the annual percentage rate for this credit can be triple 

digit. A study by Gregory Elliehausen of the Credit Research Center 

(CRC) (Monograph 37, April 2005) showed that more individuals 

below 35 years old use RALs (61 percent) as compared to the percentage 

under 35 years old who head households (28.6 percent). Seventy nine 

percent of Service members are age 35 or below.

    The rationale for a borrower wanting to obtain a RAL vary; however, 

the CRC study showed that 41 percent of borrowers obtaining RALs did so 

to pay bills, 21 percent due to unexpected expenditures, 15 percent to 

make purchases, 15 percent because of impatience and 7 percent for 

other reasons. Less than one percent said they obtained a RAL to pay 

for tax preparation. Through the Armed Forces Tax Council, in 

collaboration with the IRS, Volunteer Income Tax Assistance (VITA) 

sites are located on all active duty military installations to assist 

Service members and their families with preparation and electronic 

filing of their tax returns.

    As with other forms of short term high cost credit, the Department 

would prefer Service members and their families to consider low cost 

alternatives to resolve their financial crisis with the perspective 

that they should establish a more solid footing for their personal 

finances. The CRC study showed similar patterns of use of credit and 

debt burden between users of RALs and payday loans. Additionally, 

through education the Department attempts to persuade Service members 

that planning is an important part of managing finances, and a high 

cost 10 day loan does not reinforce this lesson.

    The five products reviewed in the Report to Congress represent two 

kinds of financial problems for Service members and their families: 

Those products that contribute to a cycle of debt (payday and vehicle 

title loans) and those products that can cost the military consumer 

high fees and interest costs (rent-to-own, installment loans and refund 

anticipation loans). Cycle of debt represents a more significant 

concern to the Department than the high cost of credit.



Alternatives



    The Department would prefer Service members and their families who 

experience financial duress seek out the alternatives available through 

Military Aid Societies, military banks and defense credit unions rather 

than credit products that would more likely mire them in a cycle of 

debt. These institutions have established programs and products 

designed to help Service members and their families resolve their 

financial crises, rebuild their credit and establish savings.

    The Military Aid Societies are strong advocates for limiting the 

cost associated with credit and for creditors to develop alternative 

products for Service members who cannot otherwise qualify for loans. 

Within their own resources they provided $87.3 million in no cost loans 

and grants to Service members and their families in 2005. These funds 

were provided for emergencies and essentials, such as rent, food, and 

utilities.

    Banks and credit unions located on military installations also 

understand the need to provide products and services that can help 

those who mishandle their finances and who may need remedial 

assistance. A review of on-base financial institutions surfaced 24 

programs on 51 military installations in the U.S. providing alternative 

small loan products designed to help Service members and their families 

to recover from their financial problems. These financial institutions 

supplement the emergency funding made available by the nonprofit 

Military Aid Societies that provide grants and no-interest loans to 

needy Service members and families.

    These banks and credit unions provide low denomination loans at 

reasonable annual percentage rates designed to assist their members who 

need to get out of high cost credit and into more traditional lending 

products. Financial counseling and education are often prerequisites 

for the short term loan and some institutions have attached a 

requirement to develop savings as part of the loan.

    Many of these military banks and credit unions use their products 

and services to maintain a watchful eye over their members to ensure 

they do not abuse services designed to assist them, such as overdraft 

protection, which if used on a chronic basis, can become very expensive 

and propel someone already overextended into a deeper spiral of debt. 

Representatives of the Association of Military Banks of America had an 

opportunity to showcase their alternative small loan products at a FDIC 

Conference held in December of 2006. FDIC hosted this conference to 

spotlight the need to develop more of these types of products for 

Service members and their families and several banks and credit unions 

described above that currently provide such favorable credit to Service 

members participated in the conference.



Efforts To Curb the Prevalence and Impact of Predatory Loans



    The Department has found that it has a small window of opportunity 

to inform and convince young Service families of what may constitute a 

beneficial product that can fit their circumstances, particularly when 

they receive many messages to the contrary. Nonetheless, the Department 

has attempted to use the processes and resources available within the 

Department to curb the prevalence of high cost short term lenders, 

particularly those that can contribute to a spiral of debt.

    Predatory lenders have seldom been placed off-limits, primarily 

because the process associated with placing commercial entities off-

limits, through the review and recommendations of the Armed Forces 

Disciplinary Control Board (AFDCB), is not well suited to this purpose. 

The AFDCB, covered by Joint Army Regulation 190-24, is designed to make 

businesses outside of military installations aware that their practices 

cause morale and discipline concerns and to offer these businesses an 

opportunity to modify their practices to preclude being placed off-

limits. When the commercial entity refuses to comply, the AFDCB 

recommends to the regional command authority to place the business off-

limits for all Service



[[Page 18161]]



members within the region (regardless of Service).

    Normally concerns are raised when a business has demonstrated 

practices that violate state or federal statute, and remediation 

involves the business curtailing these illegal practices. In the case 

of the loan products listed above, businesses usually offer their 

services within the legal limits. Since the AFDCB takes on businesses 

one at a time, bringing a lender under scrutiny has been difficult if 

the lender is complying with the same rules as its competitors. 

Additionally, the magnitude of mediating with the number of outlets 

surrounding military installations has exacerbated the process. As 

illustrated in research by Professor Steven M. Graves and Professor 

Christopher L. Peterson published in the Ohio State Law Journal, Volume 

66, Number 4, 2005, ``Predatory Lending and the Military: The Law and 

Geography of `Payday' Loans in Military Towns,'' there are large 

numbers of payday lenders which can be found in communities around 

military installations.

    Also, without appropriate authority, commanders and AFDCBs have 

difficulty citing lenders offering payday, auto title and refund 

anticipation loans as needing to take remedial action. In States that 

authorize these types of loans, AFDCBs must establish their own local 

guidelines in addition to the provisions of Federal and State law, 

ensure all affected businesses are aware of these new rules, and then 

require these businesses to comply.

    The Department has considered establishing guidelines that would 

ameliorate the concerns posed by lenders characterized above, but 

establishing these policies within DoD poses legal problems and raises 

the potential for litigation against the Department. Prior to the 

Talent-Nelson Amendment of the John Warner National Defense 

Authorization Act of 2007 (10 U.S.C. 987), there has not been any 

established authority for DoD to make rules governing credit offered by 

off-base private businesses. Commercial businesses offering these loans 

could view DoD rules as restrictions outside of the existing statutes 

and policies governing these entities and burdens provided without 

sufficient statutory authority to establish rules governing their 

businesses. Without sufficient authority, the Department would have 

difficulty making ``off limits'' declarations enforceable and could 

lead to legal action.

    As State governments have considered restricting or controlling 

payday lending, the Department has provided information concerning this 

issue and has extended its support for these measures to the extent 

that these provisions protect Service members and their families. 

Internet lenders claim jurisdiction in States with lax protections and 

unlimited rates and often attempt to bypass the State credit, usury or 

payday loan laws of the State where the borrower receives the loan. 

State regulators have successfully enforced home-State law against 

Internet payday lenders making loans to consumers in their States in 

Colorado, New York, Massachusetts, Kansas, Pennsylvania, and the 

District of Columbia.

    As stated above, the Department will continue to provide education, 

awareness and counseling programs to influence skills and attitudes 

towards managing personal resources wisely. There still remains a gap 

between the opportunity to influence a young Service member or family 

concerning the best way to manage their finances, and the level of 

experience and capability necessary to be successful. The Department 

has a limited opportunity to impress upon these young people the 

importance of managing their resources, and does not have sufficient 

control over the behavior of Service members and their families to 

preclude them taking on financial risks that can impact not only their 

quality of life, but also the mission performance of Service members.

    The Department will continue to send Service members messages that 

they and their families need to manage their resources wisely for their 

own benefit and to maintain personal readiness. The Department's call 

for responsibility competes with market messages from the sub-prime 

financial industry to get cash now for purchases, vacations, and paying 

bills. Their marketing stresses the ease and convenience of obtaining 

these loans, with virtual guarantee of approval. These messages can be 

particularly alluring to Service members and families already over 

burdened with bills and debts. A 2006 survey accomplished by the 

Consumer Credit Research Foundation stated that the primary reason 

Service members choose payday loans is because they are convenient. 

Certainly, obtaining ``fast cash'' from a payday lender is far more 

convenient than considering uncontrolled debt or addressing inherent 

overspending that creates situations where sub-prime loans are needed.

    Service members have inherently understood that limits on interest 

rates are appropriate, even if these limits would decrease the 

availability of credit. When asked in a 2006 survey conducted by the 

Consumer Credit Research Foundation if Service members strongly/

somewhat agree or disagree with the statement: ``The government should 

limit the interest rates that lenders can charge even if it means fewer 

people will be able to get credit,'' over 74 percent of the Service 

members surveyed agreed with the statement (with over 40 percent 

strongly agreeing). Similarly when asked their position on the 

statement ``There is too much credit available today,'' 75 percent of 

Service members not using payday loans and 63 percent of Service 

members using payday loans agreed (with 51 percent of non users 

strongly agreeing).



``Limitations on Terms of Consumer Credit Extended to Service Members 

and Dependents,'' John Warner National Defense Authorization Act for 

Fiscal Year 2007



    After both the Congressional Banking and Armed Service Committees 

reviewed the issue of predatory lending directed at members of the 

Armed Forces and their dependents, the Armed Service Committees 

included Sec.  670 in the John Warner National Defense Authorization 

Act for Fiscal Year 2007. The resulting statute, 10 U.S.C. 987, directs 

the Secretary of Defense to establish policy to implement the 

provisions of the statute. The Secretary is to accomplish the 

regulation prior to October 1, 2007, when the statute goes into effect, 

and to draft the regulation in consultation with the Department of 

Treasury, Office of the Comptroller of the Currency, Office of Thrift 

Supervision, Board of Governors of the Federal Reserve System, Federal 

Trade Commission, Federal Deposit Insurance Corporation, and the 

National Credit Union Administration. Specifically, section (h)(2) 

requires the Secretary of Defense to define key terms as part of 

developing the regulation:

    ``(A) Disclosures required of any creditor that extends consumer 

credit to a covered member or dependent of such a member.

    (B) The method for calculating the applicable annual percentage 

rate of interest on such obligations, in accordance with the limit 

established under this section.

    (C) A maximum allowable amount of all fees, and the types of fees, 

associated with any such extension of credit, to be expressed and 

disclosed to the borrower as a total amount and as a percentage of the 

principal amount of the obligation, at the time at which the 

transaction is entered into.



[[Page 18162]]



    (D) Definitions of `creditor' under paragraph (5) and `consumer 

credit' under paragraph (6) of subsection (i), consistent with the 

provisions of this section.

    (E) Such other criteria or limitations as the Secretary of Defense 

determines appropriate, consistent with the provisions of this 

section.''

    This broad latitude allows the Department of Defense to determine 

the scope and impact of the regulation, consistent with the provisions 

of the statute. These provisions have been established to protect 

Service members and their families from potentially abusive lending 

practices and products. The provisions, or terms, of the statute 

provide several limitations on credit transactions, and the statute 

allows the Department to focus these limitations on areas that create 

the most concern.

    Through correspondence received from numerous creditors and trade 

associations representing creditors, the Department has learned of the 

potential unintended consequences of these limitations that could 

potentially preclude Service members and their families from receiving 

a multitude of credit products not determined as harmful. These 

commenters suggested, as a simple way to limit the potential unintended 

consequences of the rule and adverse impact on the availability of 

credit for Service members by regulated depository institutions and 

their subsidiaries, that the regulations include a complete or limited 

carve-out from the ``creditor'' definition of insured depository 

institutions and their subsidiaries. As described in the section-by-

section description that follows, the Department did not specifically 

propose to exclude any types of lenders from the regulatory definition 

of ``creditor.'' The intent of the statute is clearly to apply these 

limitations so that their impact is upon credit practices evaluated as 

negative without impeding the availability of credit that is benign or 

beneficial to Service members and their families. The Department is 

proposing a regulation it believes is fully consistent with this 

intent.

    QUESTION 1: However, we seek comment on whether the final 

regulation should exclude regulated banks, credit unions and savings 

associations and their subsidiaries from coverage by the regulation 

generally, or in limited circumstances such as in the following 

circumstances: (1) the depository institutions are subject to 

supervision and regulation by a federal regulatory agency; (2) the 

institution extends covered ``consumer credit''; (3) the extension of 

consumer credit by the institution is subject to supervisory guidance 

by the federal bank regulatory agency that addresses consumer 

protection, disclosure, and safety and soundness criteria applicable to 

such lending; and (4) the federal bank regulatory agency agrees to act 

on matters referred to it by the Department concerning complaints that 

such lending to a covered member may be inconsistent with the 

supervisory guidance, applicable law, or is having an adverse effect on 

military readiness. Would depository institutions find an exclusion 

that is limited in this manner useful? The Department notes that if the 

final regulatory definition includes additional limitations on the 

definition of covered ``creditor,'' it would not be precluded from 

expanding that definition in the future as appropriate to address new 

concerns or changed circumstances.



II. Description of the Regulation, By Section:



    232.1 and 232.2, Authority, purpose and coverage, and 

Applicability: No further descriptions provided other than that 

contained in the regulation.

    232.3, Definitions:

    In drafting a regulation to implement the statute, the Department 

has chosen to use the opportunity to define the terms ``creditor'' and 

``consumer credit'' judiciously, having heard from numerous groups 

through comments received in response to Federal Register notice DoD-

2006-OS-0216, solicited and unsolicited comments and through meetings 

requested of the Department that applying the provision broadly would 

create numerous unintended consequences. These unintended consequences 

would have a ``chilling effect'' on the availability of consumer credit 

covered as part of the statute.

    In defining the term creditor, the statute provides the following:

    ``(5) CREDITOR.--The term `creditor' means a person--

    (A) who--

    (i) is engaged in the business of extending consumer credit; and

    (ii) meets such additional criteria as are specified for such 

purpose in regulations prescribed under this section; or

    (B) who is an assignee of a person described in subparagraph (A) 

with respect to any consumer credit extended.''

    Consistent with the statute, the proposed regulation defines 

``creditor'' as any person who extends consumer credit covered by part 

232. For this purpose a ``person'' includes both natural persons as 

well as business entities, but would exclude governmental entities. 

Pursuant to the Department's authority to specify additional criteria, 

a person would be a creditor only if the person is also a ``creditor'' 

for purposes of the Truth in Lending Act. For clarity, the Department 

has implemented the provision covering assignees by including a 

specific reference to assignees in each section of the regulation that 

would apply to an assignee, in lieu of including assignees in the 

definition of ``creditor.'' See sections 232.4, 232.8 and 232.9.

    The definition of consumer credit provided in the statute is as 

follows:

    ``(6) CONSUMER CREDIT.--The term `consumer credit' has the meaning 

provided for such term in regulations prescribed under this section, 

except that such term does not include (A) a residential mortgage, or 

(B) a loan procured in the course of purchasing a car or other personal 

property, when that loan is offered for the express purpose of 

financing the purchase and is secured by the car or personal property 

procured.''

    This proposed regulation seeks to address the concerns addressed by 

many institutions and associations that corresponded with the 

Department by limiting the scope of the products upon which the 

provisions of the statute would apply. It is clearly the intent of the 

statute that consumer credit be defined by the Department, as long as 

it does not include the two listed exemptions. The definition in this 

proposed regulation clearly excludes these two types of loans and 

focuses on three problematic credit products that the Department 

identified in its August 2006 Report to Congress on the Impact of 

Predatory Lending Practices on Members of the Armed Forces and Their 

Dependents: payday loans, vehicle title loans, and refund anticipation 

loans.

    With respect to exclusion of ``residential mortgages'' the proposed 

regulation clarifies that the exclusion applies to any credit 

transaction secured by an interest in the borrower's dwelling. Thus, 

home-purchase transactions, refinancings, home-equity loans, and 

reverse mortgages would be excluded. Home equity lines of credit are 

also excluded. In addition, the property need not be the consumer's 

primary dwelling to qualify for the exclusion. A ``dwelling'' includes 

any residential structure containing one to four units, whether or not 

the structure is attached to real property, and would also include an 

individual condominium unit, cooperative unit, mobile home, and 

manufactured home.

    The Department's proposed definition of the term ``consumer 

credit'' is intended to narrow the regulation's



[[Page 18163]]



impact to consumer credit products and services that are potentially 

detrimental and for which there are DoD-recommended, alternative 

products or services available to Service members and their families. 

DoD believes that a narrow definition can prevent unintended 

consequences while affording the protections granted by the statute.

    In addition to the above criteria, the Department intends to use 

the definition of consumer credit to encourage the financial services 

industry to offer affordable small loans for Service members and their 

families.



Payday Loans



    Payday loans have common characteristics that make them detrimental 

to a Service member's financial well being and inferior to alternative 

sources of emergency support. These characteristics can exacerbate a 

cycle of debt, particularly if the borrower is already over-extended 

through the use of other forms of credit. The proposed regulation 

defines ``Payday loans'' based on certain characteristics, in order to 

distinguish them from other financial products. A payday loan is 

defined as a closed-end credit transactions having a term of 91 days or 

less, where the amount financed does not exceed $2,000. The ``amount 

financed'' is not defined in this regulation, but must be determined 

based on the definition of that term in the Federal Reserve Board's 

Regulation Z, which implements the Truth in Lending Act. In addition, 

the definition of ``payday loan'' is limited to transactions where the 

borrower contemporaneously provides a check or other payment instrument 

that the creditor agrees to hold, or where the borrower 

contemporaneously authorizes the creditor to initiate a debit or debits 

to the covered borrower's deposit account.

    Payday loans, otherwise known as deferred presentment loans, are 

allowed in 39 States as a separate credit product from other forms of 

credit regulated by Federal or State statute. States authorizing these 

types of loans require payday lenders to obtain a license to operate 

within the State. States have defined these products and services, 

primarily through the basic process used to secure a payday loan, 

either through holding a check or by obtaining access to a bank account 

through electronic means. These basic processes have been included as 

part of the definition of payday loans in the regulation (Section 

232.3(c)). Many States have also established limits to the amount that 

can be borrowed and the duration of the loan as part of the authorized 

activities of lenders licensed to offer these products and services. A 

review of State limits for payday loans establishes a foundation for 

the definition used in this regulation.

    The majority of States have a maximum dollar amount, maximum time 

limits and maximum fees that regulate the product. Six States (New 

Mexico, Oregon, Texas, Utah, Wisconsin and Wyoming) have no dollar 

limit on the amount that can be loaned, and nine States (Alaska, 

Arizona, Idaho, New Mexico, Rhode Island, South Dakota, Virginia, 

Wisconsin and Wyoming) have no maximum limit established for the 

duration of a payday loan. Of the States with dollar and duration 

limits, the maximum amount loaned is $1,000 (Idaho and Illinois) and 

the maximum duration of a loan is 180 days (Ohio). The average dollar 

limit is $519 and the average duration limit is 46 days.

    Payday loans offered over the internet often originate in States 

with no limits on fees or maximum loan amounts. A survey of Web sites 

offering payday loans indicates $1,500 as generally the maximum amount 

loaned. A review of sites marketing ``Military Payday Loans'' refer to 

loans of up to 40 percent of a Service member's take home pay. This 

amount can vary considerably based on rank, other entitlements, tax 

withheld and military allotments. For married enlisted Service members 

in the grade of E-6 and below (no deductions for taxes or other 

allotments), the proposed limit would cover a loan made for 40 percent 

of take home pay. The limits established in the definition for payday 

loans reflect the maximum duration and amount anticipated for loans 

based on current State practices, to include internet payday loans 

originating from locations without limits. QUESTION 2: The Department 

seeks comments concerning whether the duration limit and monetary limit 

on the amount of the loan included in the definition of payday lending 

creates any unintended consequences for other credit products.

    The definition provided in 232.3(b)(1)(A)(ii) includes the 

following statement: ``This provision does not apply to any right of a 

depository institution under statute or common law to offset 

indebtedness against funds on deposit in the event of the covered 

borrower's delinquency or default.'' This exemption only applies if the 

depository institution has a right of offset under State or other 

applicable law.

    As previously stated, the Department's intention is that the 

definition of payday loans does not impede creditors providing 

alternatives to payday loans with high fees. The Department's August 

2006 report to the Congress describes a variety of affordable credit 

products that banks and credit unions located on military installations 

offer to members of the armed services. Such loans generally had annual 

percentage rates (APRs) for Truth in Lending Act purposes of 18% or 

less. Because the loans may be for a small dollar amount, any flat fee 

charged by the lender in connection with originating the loan could 

cause the Military Annual Percentage Rate (MAPR), defined by the 

proposed regulation, to exceed 36% even though the interest rate may be 

much lower.



Vehicle Title Loans



    The Department believes that vehicle title loans meet the proposed 

definition of consumer credit, and that subjecting them to the proposed 

rule is consistent with the Department's intent in developing the 

regulation. The definition for ``vehicle title loans'' limits the 

rule's coverage to loans of 180 days or less. Many States have not 

established statutes overseeing these loans. A 2005 survey of States 

conducted by the Consumer Federation of America (CFA) found that, of 

the 16 States authorizing vehicle-title lending, 10 require 30 day or 

one month term limits (with authorized renewals or extensions), one 

State allows up to 60 days (with 6 renewals), one State requires 

installments and four States do not establish term limits. QUESTION 3: 

The Department seeks comments as to whether the limits established for 

vehicle title loans for duration of the loan included as part of the 

definition cause any unintended consequences for other credit products.



Refund Anticipation Loans



    The Department believes that covering RALs is consistent with the 

intent of the Department's proposed regulation. RALs can also be 

defined to limit unintended consequences and refunds can be provided 

expeditiously. There have been only a few States that have developed 

statutes concerning RALs. Connecticut is the only state that has 

established a rate cap, and prohibit transactions where the APR exceeds 

60 percent. Other states, such as California, Washington, Oregon and 

Nevada have established statutes specifying disclosure requirements for 

RALs.

    The Department is interested in ensuring that lenders continue to 

offer responsible, small-dollar loan products that meet the credit 

needs of service members and their families. QUESTION 4: Accordingly, 

the Department solicits comments on regulatory approaches



[[Page 18164]]



that would encourage creditors to offer affordable, small-dollar, 

short-term loans to Service members and their dependents. For example, 

should transactions that would otherwise be covered as payday loans be 

exempt from coverage under these rules if the MAPR is less than 24% 

MAPR or some other rate specified in the rules? Would a similar rule be 

appropriate for vehicle-title loans or tax refund anticipation loans? 

Are there other approaches that DoD should consider?

    The definition of MAPR creates a distinctive percentage rate that 

reflects the provisions of the statute. The MAPR does not include fees 

imposed for unanticipated late payments, default, delinquency or a 

similar occurrence, because such fees are imposed as a result of 

contingent events that may occur after the loan is consummated. Thus, 

such fees are not included in the computation of the maximum 36% MAPR 

cap imposed by these rules. QUESTION 5: The Department solicits comment 

on whether there are other fees that should be expressly excluded for 

the same reason.

    232.4, Terms of consumer credit extended to covered borrowers: This 

section implements the statutory prohibition limiting the amount that 

creditors may charge for extensions of consumer credit to covered 

borrowers. The proposed rule mirrors the statutory language. This 

section also applies to ``assignees'' consistent with the statutory 

definition of ``creditor.''

    232.5, Identification of covered borrower:

    The Department has received several comments expressing concern 

over the potential difficulty in identifying a covered borrower, 

particularly in light of the penalties for failing to provide the 

statutory protections to a covered borrower. While DoD recognizes this 

concern, the Department would emphasize that identifying the covered 

borrower is only relevant in the context of transactions defined by the 

regulation as consumer credit (for payday loans, vehicle title loans 

and refund anticipation loans).

    The Department's intent is to balance protections for covered 

borrowers (according to the statute) and protections for creditors. The 

Department understands creditors may otherwise decline offering 

beneficial credit products to covered borrowers as a result of concerns 

over penalties. To achieve an appropriate balance, the Department has 

proposed a safe harbor, under which the creditor may require the 

applicant to sign a statement declaring whether or not he or she is a 

covered borrower (using the definition from the statute). If required 

by the creditor, this declaration provides a ``safe harbor'' for the 

creditor to prevent inadvertently violating the statute by failing to 

recognize a covered borrower.

    There is one caveat to this ``safe harbor'' provision. If the loan 

applicant signs a declaration that denies being a covered borrower, but 

the creditor obtains documentation as part of the credit transaction 

reflecting that the applicant is a covered borrower (such as, a current 

military leave and earning statement as proof of employment, or a tax 

filing that takes advantage of a specific tax provision designed to 

benefit the military), the applicant's declaration would not create a 

safe harbor for the creditor. In such cases creditors should seek to 

resolve the inconsistency, but if they are unable to do so, they may 

avoid any risk of noncompliance by treating the applicant as a covered 

borrower based on the documentation or by declining to extend credit 

due to the inability to verify information provided in the borrower's 

signed declaration.

    This caveat is being included to prevent creditors from using the 

declaration to allow covered borrowers to waive their right to the 

protections provided by the regulation. This may occur when the 

creditor recognizes the applicant is a covered borrower, as a result of 

the documents presented as part of the credit transaction. The intent 

of this caveat is not to hold the creditor accountable for false 

statements made by an applicant when there is no indication through the 

credit transaction that the applicant is a covered borrower.

    The opposite situation, where an applicant claims to be a covered 

borrower without presenting proof of his or her status does not require 

further validation by the creditor. However, creditors have the option 

of verifying the applicant's status as a covered borrower using several 

sources of information, but they are not required to do so. Thus, 

creditors may request applicants to provide proof of their current 

employment and income, for example by requesting from service members a 

copy of the most recent month's military leave and earning statement. 

Creditors may also request service members or dependents to provide a 

copy of their military identification card.

    These sources, however, might not always be determinative. For 

example, in some a cases a leave and earnings statement might not 

reflect a recent change in the applicant's active duty status. Military 

identification cards, that are the same as identification cards carried 

by members of the active component, are issued to members of the 

National Guard and the Reserve regardless of their duty status. Hence, 

the proposed regulation states ``[u]pon such request, activated members 

of the National Guard or Reserves shall also provide a copy of the 

military orders calling the covered member to military service and any 

orders further extending military service.'' This would also be the 

case for their dependents. The proposed rule does not provide a safe 

harbor to creditors in the situation described in this paragraph.

    It is the Department's understanding that providing proof of 

employment is a prerequisite to receiving a payday loan or a vehicle 

title loan. The military leave and earning statement is the document 

that provides validation of employment. There are several tax 

provisions which are directed toward assisting the military. If the tax 

preparer includes these provisions as part of the tax return, the 

creditor should be made aware of this disclosure in order to validate 

the status of the applicant prior to processing the application for a 

refund anticipation loan. QUESTION 6: The Department would like 

feedback on the creditor's involvement in tax filing aspects of a 

refund anticipation loan.

    The Department intends to provide access to a database to creditors 

to validate the status of an applicant. This arrangement is currently 

available to creditors to validate the active duty status of Service 

members as part of implementation of benefits authorized by the Service 

Members Civil Relief Act (https://www.dmdc.osd.mil/scra/owa/home). The 



proposed database will include the status of covered borrowers and can 

be used to resolve questions creditors may have about the status of an 

applicant who denies being a covered member and yet presents 

information during the credit transaction that is contrary to this 

declaration. In these situations, the database would provide the most 

accurate verification of the status of the applicant, to include 

activated members of the National Guard and Reserve and their 

dependents.

    QUESTION 7: Since this issue is critical to the success of the 

regulation, and also protecting the reputation of the creditor, the 

Department solicits further comment on the proposed ``safe harbor'' 

concept and the methodology proposed to implement the intended balance 

in approach to identification.

    232.6, Mandatory disclosures:

    Section 232.6 describes the disclosures that must be provided to 

covered borrowers before they become obligated on a consumer credit 

transaction, which includes the new



[[Page 18165]]



disclosures established under 10 U.S.C. 987 but also includes 

disclosures that creditors are already required to provide pursuant to 

the Federal Reserve Board's Regulation Z, which implements the Truth in 

Lending Act (TILA). Regulation Z contains certain requirements 

pertaining to the format of the TILA disclosures for closed-end credit 

transactions, including a requirement that they ``shall be grouped 

together, shall be segregated from everything else, and shall not 

contain any information not directly related'' to the disclosures 

required under Regulation Z. The Department intends that the 

disclosures required under this proposal be provided consistent with 

the format requirements of Regulation Z. Accordingly, the covered 

borrower identification statement described in Sec.  232.5 and the 

disclosures provided pursuant to Sec.  232.6(a)(1), (3), and (4) should 

not be interspersed with the TILA disclosures.

    The general rule is that disclosures required by Sec.  232.6(a)(1), 

(3), and (4) must be provided orally as well as in writing. However, in 

credit transactions entered into by mail or on the internet, a creditor 

complies with this requirement if the creditor provides covered 

borrowers with a toll-free telephone number on or with the written 

disclosures and the creditor provides oral disclosures when the covered 

borrower contacts the creditor for this purpose.

    As with identification of the covered borrower, the Department has 

received several comments about potential disparities in disclosures 

required by this regulation as opposed to TILA, as well as the 

difficulty of potentially presenting disclosures orally under part 232 

when an offer is made through the mail or over the internet. QUESTION 

8: The Department requests comment on whether the proposed rule for 

providing certain disclosures orally adequately addresses the 

compliance difficulties associated with the statutory requirements for 

oral disclosures, or whether another approach is more appropriate.

    As with other aspects of the statute, the Department's intention 

has been to develop a regulation that is true to the intent of the 

statute without creating a system that is so burdensome that the 

creditor cannot comply. The Department also recognizes the potential 

confusion inherent in mandating the disclosure of two annual percentage 

rates (the MAPR required by this regulation and the APR required by 

TILA). QUESTION 9: DoD therefore seeks comments on this proposed 

requirement and invites suggestions on alternative approaches.

    232.7, Preemption: The proposed regulation would implement the 

statutory provision. Although revisions have been made to the statutory 

language for clarity, no substantive change is intended.

    232.8, Limitations:

    Section 232.8(a) implements the statutory provision in 10 U.S.C. 

987(e)(1), which prohibits a creditor from extending consumer credit to 

a covered borrower in order to roll over, renew, or refinance consumer 

credit that was previously extended by the same creditor to the same 

covered borrower. The proposed regulation includes a limited exception 

to this prohibition, however, to permit workout loans and other 

refinancings that may benefit the borrower. QUESTION 10: The Department 

solicits comment on whether it can or should adopt this approach.

    QUESTION 11: Assuming the final rule permits a creditor to roll 

over, renew or refinance credit that it previously extended to the same 

covered borrower in limited circumstances, the Department solicits 

comment on whether it can and should also adopt a rule clarifying that 

refinancings or renewals of a covered loan require new disclosures 

under Sec.  232.6 only when the transaction would also be considered a 

new transaction that requires Truth in Lending Act disclosures. Whether 

or not new disclosures are required, the Department believes that when 

a creditor refinances or renews credit that it extended to a covered 

borrower the limitations on rates and terms apply in the same manner as 

they would for the original consumer credit transaction.

    In some cases, a consumer might become a covered borrower after 

obtaining consumer credit. When consumers request to refinance or renew 

a short-term loan, creditors are likely to rely on their original 

determination that the consumer is not a covered borrower. The 

Department believes that it would be unnecessarily burdensome to impose 

a duty on creditors to make a new determination in each transaction 

given that a change in the borrower's status will infrequently occur 

with short-term transactions. Accordingly, the proposed rule would not 

apply when the same creditor extends consumer credit to a covered 

borrower to refinance or renew an extension of credit that was not 

covered by Part 232 because the consumer was not a covered borrower at 

the time of the original transaction.

    QUESTION 12: The Department solicits comment on this approach. If 

such transactions were to be covered, however, should the disclosures 

in Sec.  232.6 only be required for transactions also deemed to be 

transactions requiring new disclosures under the Truth in Lending Act?

    Subparagraph (a)(3) makes it unlawful for any creditor to extend 

consumer credit to a covered borrower if the ``creditor requires the 

covered borrower to submit to arbitration or imposes other onerous 

legal notice provisions.'' The requirement is in accordance with 10 

U.S.C. 987(e)(3). QUESTION 13: The Department does not have the 

specific notice provisions or examples to include with this regulation 

and requests feedback on particular legal notice provisions that should 

be considered onerous.

    Similarly, subparagraph (a)(4) makes it unlawful for any creditor 

to extend consumer credit to a covered borrower if the ``creditor 

demands unreasonable notice from the covered borrower as a condition 

for legal action.'' This requirement is in accordance with 10 U.S.C. 

987(e)(4), and as with onerous legal notice provisions, the Department 

does not have specific unreasonable notices or examples to include in 

the regulation. QUESTION 14: Feedback is also requested on this 

provision and particular notice requirements that should be considered 

unreasonable.

    Section 232.8(a)(5) provides an exemptions to creditors, with 

respect to consumer credit, to use electronic fund transfer to repay a 

consumer credit, require direct deposit of the consumer's salary as a 

condition of eligibility for consumer credit, or take a security 

interest in funds deposited after the extension of credit in an account 

established in connection with the consumer credit transactions that 

are below 36% MAPR. This exemption is made with the recognition that 

this exemption must be provided in compliance with other applicable 

statutes governing the use of electronic fund transfers, savings and 

direct deposit of consumer's salary. The Department believes the 

flexibility provided by the 10 U.S.C. 987(h)(2)(E) may allow the 

Department the authority to provide this exemption to facilitate 

creditors to make alternative loans designed to assist covered 

borrowers with financial recovery. The Department believes providing 

this opportunity is important in fulfilling the Department's intended 

purpose of encouraging creditors to provide alternative loan products. 

QUESTION 15: The Department solicits comments on whether it can or 

should adopt this proposed exemption.

    Section 8(a)(7) prohibits creditors from charging a prepayment 

penalty to



[[Page 18166]]



covered borrowers. The proposed rule does not define what constitutes a 

prepayment penalty, and the Department expects creditors to rely on 

existing state and federal laws, as applicable. QUESTION 16: Comment is 

specifically solicited on this approach.

    232.9, Penalties and remedies:

    This provision incorporates the penalties and enforcement 

provisions contained in the statute. Section 9 provides, among other 

things, that any credit agreement subject to the regulation which fails 

to comply with this regulation is void from inception. It further 

provides that a creditor or assignee who knowingly violates the 

regulation shall be subject to certain criminal penalties.

    The statute, however, does not provide explicitly for enforcement 

of these rules beyond the provisions described above. The Department 

understands that the federal bank, thrift and credit union regulatory 

agencies have authority--derived from federal law unique to federally-

regulated depository institutions--to enforce these rules with respect 

to the institutions that they supervise. However, the Department notes 

that this authority extends to a narrow category of depository 

institutions that it proposes to cover as ``creditors'' (See Question 1 

above), but it does not extend to other creditors, such as nonbank 

lenders, that would also be covered creditors and that may be most 

likely to provide the types of consumer credit restricted by these 

rules. The Department is concerned that reliance solely on private 

litigation or criminal prosecution with respect to these other 

creditors may be insufficient to ensure uniform compliance with these 

rules with respect to all creditors. QUESTION 17: Comment is requested 

on all aspects of these issues, and on how to ensure uniform 

implementation of, and compliance with, the statute by creditors not 

subject to oversight by the federal bank, thrift, and credit union 

regulatory agencies.

    232.10, Effective date and transition:

    The comment period for this proposal is 60 days. The Department 

intends to review the comments in a timely manner in order to propose 

and publish final rules on or before September 1, 2007, which is 30 

days before the rules would become effective on October 1, 2007. 

QUESTION 18: Comment is solicited on the proposed timing for the 

publication of final rules. In particular, the Department requests 

comment on the ability of covered creditors to comply with the proposed 

rules by October 1 in light of the specific credit products that would 

be covered by the rules.



Statutory Certification



Executive Order 12866, ``Regulatory Planning and Review''



    It has been determined that 32 CFR part 232 is not an economically 

significant regulatory action. The rule does not:

    (1) Have an annual effect to the economy of $100 million or more or 

adversely affect in a material way the economy; a section of the 

economy; productivity; competition; jobs; the environment; public 

health or safety; or State, local, or tribal governments or 

communities;

    (2) Create a serious inconsistency or otherwise interfere with an 

action taken or planned by another Agency;

    (3) Materially alter the budgetary impact of entitlements, grants, 

user fees, or loan programs, or the rights and obligations of 

recipients thereof; or

    (4) Raise novel legal or policy issues arising out of legal 

mandates, the President's priorities, or the principles set forth in 

this Executive Order.

    Nevertheless, the proposed regulation was submitted to the Office 

of Management and Budget for review under other provisions of Executive 

Order 12866 as a significant regulatory action.



Unfunded Mandates Reform Act (Sec. 202, Pub. L. 104-4)



    It has been certified that this rule does not contain a Federal 

mandate that may result in the expenditure by State, local and tribal 

governments, in aggregate, or by the private sector, of $100 million or 

more in any one year.



Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)



    It has been certified that this rule is not subject to the 

Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if 

promulgated, have a significant economic impact on a substantial number 

of small entities. The North American Industrial Classification (NAIC) 

for the impacted businesses is 522390--``other financial activities 

related to credit intermediation.'' According to the 2002 Economic 

Census, there are approximately 5,205 small businesses related to this 

classification, with 3,000 of these small businesses having less than 5 

employees. These 5,205 businesses represent a portion of the 51,725 

potential respondents cited in the Paperwork Reduction Act evaluation.

    The limitations and disclosures posed by this part impact a small 

percentage of the market served by the industries covered by this part. 

For example according to the payday lending trade association, Service 

members and their dependents represent approximately 1-2 percent of the 

payday lending market. Thus there is not a significant economic impact 

on a substantial number of small entities.



Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)



    Section 232.6 of this proposed rule contains information collection 

requirements. DoD has submitted the following proposal to OMB under the 

provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35). 

Comments are invited on: (a) Whether the proposed collection of 

information is necessary for the proper performance of the functions of 

DoD, including whether the information will have practical utility; (b) 

the accuracy of the estimate of the burden of the proposed information 

collection; (c) ways to enhance the quality, utility, and clarity of 

the information to be collected; and (d) ways to minimize the burden of 

the information collection on respondents, including the use of 

automated collection techniques or other forms of information 

technology.

    Title: Mandatory Loan Disclosures as Part of Limitations on Terms 

of Consumer Credit Extended to Service Members and Their Dependents.

    Type of Request: New requirement.

    Number of Respondents: 51,725.

    Responses per Respondent: 1 per respondent.

    Annual Responses: 1,219,035.

    Average Burden per Response: 2-2.5 minutes, plus one business day 

to revise processes and two business days to revise applicable Web 

sites.

    Annual Burden Hours: 182,105.

    Needs and Uses: With respect to any extension of consumer credit 

(including any consumer credit originated or extended through the 

Internet) to a covered borrower, a creditor shall provide to the member 

or dependent the following information clearly and conspicuously before 

consummation of the consumer credit transaction:

    (1) The Military Annual Percentage Rate (MAPR) applicable to the 

extension of consumer credit, and the total dollar amount of all 

charges included in the MAPR.

    (3) A clear description of the payment obligation of the covered 

member or dependent, as applicable. A payment schedule provided 

pursuant to subsection (2) satisfies this requirement.

    (4) A statement that ``Federal law provides important protections 

to active duty members of the Armed Forces and their dependents. 

Members of the Armed Forces and their dependents may be able to obtain 

financial



[[Page 18167]]



assistance from Army Emergency Relief, Navy and Marine Corps Relief 

Society, the Air Force Aid Society, or Coast Guard Mutual Aid. Members 

of the Armed Forces and their family members may request free legal 

advice regarding an application for credit from a service legal 

assistance office or financial counseling from a consumer credit 

counselor.''

    The creditor shall provide the disclosures in writing in a form the 

covered borrower can keep. The creditor also shall provide the required 

disclosures orally. In mail and internet transactions, the creditor 

satisfies this requirement by providing a toll-free telephone number on 

or with the written disclosures that consumers may use to obtain oral 

disclosures.

    Affected Public: Creditors making payday loans, vehicle title loans 

and refund anticipation loans.

    Frequency: One for each loan transaction, which is equal to an 

occasional frequency .

    Respondent's Obligation: Mandatory.

    Written comments and recommendations on the proposed information 

collection should be sent to the Office of Management and Budget, Desk 

Officer for the Department of Defense, Room 10235, New Executive Office 

Building, Washington, DC 20503, fax number: (202) 395-6974 with a copy 

to the Office of the Under Secretary of Defense for Personnel and 

Readiness (MC&FP), DoD State Liaison Office, Attn: Mr. George Schaefer, 

4000 Defense Pentagon, Washington, DC 20301-4000, telephone (703) 588-

0876. Comments can be received from 30 to 60 days after the date of 

this notice, but comments to OMB will be most useful if received by OMB 

within 30 days after the date of this notice.

    You may also submit comments, identified by docket number and 

title, by the following method:

    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 



instructions for submitting comments.

    Instructions: All submissions received must include the agency 

name, docket number and title for this Federal Register document. The 

general policy for comments and other submissions from members of the 

public is to make these submissions available for public viewing on the 

Internet at http://www.regulations.gov as they are received without 



change, including any personal identifiers or contact information.

    To request more information on this proposed information collection 

or to obtain a copy of the proposal and associated collection 

instruments, please write to the Office of the Office of the Under 

Secretary of Defense for Personnel and Readiness (MC&FP), DoD State 

Liaison Office, Attn: Mr. George Schaefer, 4000 Defense Pentagon, 

Washington, DC 20301-4000, or telephone Mr. Schaefer at (703) 588-0876.



Executive Order 13132 Federalism



    Executive Order 13132 requires that Executive departments and 

agencies identify regulatory actions that have significant federalism 

implications. A regulation has federalism implications if it has 

substantial direct effects on the States, on the relationship or 

distribution of power between the Federal Government and the States, or 

on the distribution of power and responsibilities among various levels 

of government.

    The provisions of this part, as required by 10 U.S.C. 987, 

overrides State statutes inconsistent with this part to the extent that 

these provisions provide different protections for covered borrowers 

than those provided to residents of that State. As discussed in the 

section-by-section description of the proposed part, the provisions are 

more stringent for creditors providing consumer credit to covered 

borrowers (as defined in the part). In such circumstances, State laws 

would not be preempted by operation of this part.

    In this respect, this proposed part, if adopted, would not affect 

in any manner the powers and authorities that any State may have or 

affect the distribution of power and responsibilities between Federal 

and State levels of government. Therefore, the Department has 

determined that the proposed part has no federalism implications that 

warrant the preparation of a Federalism Assessment in accordance with 

Executive Order 13132.



List of Subjects in 32 CFR Part 232



    Loan programs, Reporting and recordkeeping requirements, Service 

members.

    For the reasons set forth in the preamble, chapter I of title 32, 

Code of Federal Regulations is proposed to amended by adding part 232 

to read as follows:



PART 232--LIMITATIONS ON TERMS OF CONSUMER CREDIT EXTENDED TO 

SERVICE MEMBERS AND DEPENDENTS



Sec.

232.1 Authority, purpose, and coverage.

232.2 Applicability.

232.3 Definitions.

232.4 Terms of consumer credit extended to covered borrowers.

232.5 Identification of covered borrower.

232.6 Mandatory loan disclosures.

232.7 Preemption.

232.8 Limitations.

232.9 Penalties and remedies.

232.10 Servicemembers Civil Relief Act protections unaffected.

232.11 Effective date and transition.



    Authority: 10 U.S.C. 987.





Sec.  232.1  Authority, purpose, and coverage.



    (a) Authority. This part is issued by the Department of Defense to 

implement 10 U.S.C. 987.

    (b) Purpose. The purpose of this part is to impose limitations on 

the cost and terms of certain defined extensions of consumer credit to 

Service members and their dependents, and to provide additional 

consumer disclosures for such transactions.

    (c) Coverage. This part defines the types of consumer credit 

transactions, creditors, and borrowers covered by this part, consistent 

with the provisions of 10 U.S.C. 987. In addition, this part:

    (1) Provides the maximum allowable amount of all charges, and the 

types of charges, that may be associated with a covered extension of 

consumer credit;

    (2) Requires creditors to disclose to covered borrowers the cost of 

the transaction as a total dollar amount and as an annualized 

percentage rate referred to as the Military Annual Percentage Rate or 

MAPR, which must be disclosed before the borrower becomes obligated on 

the transaction. The disclosures required by this regulation differ 

from and are in addition to the disclosures that must be provided to 

consumers under the Federal Truth in Lending Act;

    (3) Provides for the method creditors shall use in calculating the 

MAPR, and;

    (4) Contains such other criteria and limitations as the Secretary 

of Defense has determined appropriate, consistent with the provisions 

of 10 U.S.C. 987.





Sec.  232.2  Applicability.



    This part applies to consumer credit extended by creditors to a 

covered borrower, as those terms are defined in this part.





Sec.  232.3  Definitions.



    Terms used in this part are defined as follows:

    (a) Closed-end credit means consumer credit other than ``open-end 

credit'' as that term is defined in Regulation Z (Truth in Lending), 12 

CFR Part 226.

    (b) Consumer credit means credit offered or extended to a covered 

borrower primarily for personal, family or household purposes, as 

described in paragraph (b)(1) of this section.



[[Page 18168]]



    (1) Except as provided in paragraph (b)(2) of this section, 

consumer credit means the following transactions:

    (i) Payday loans. Closed-end credit with a term of 91 days or less 

in which the amount financed does not exceed $2,000 and the covered 

borrower:

    (A) Receives funds from and incurs interest and/or is charged a fee 

by a creditor, and contemporaneously provides a check or other payment 

instrument to the creditor who agrees with the covered borrower not to 

deposit or present the check or payment instrument for more than one 

day, or;

    (B) Receives funds from and incurs interest and/or is charged a fee 

by a creditor, and contemporaneously authorizes the creditor to 

initiate a debit or debits to the covered borrower's deposit account 

(by electronic fund transfer or remotely created check) after one or 

more days. This provision does not apply to any right of a depository 

institution under statute or common law to offset indebtedness against 

funds on deposit in the event of the covered borrower's delinquency or 

default.

    (ii) Vehicle title loans. Closed-end credit with a term of 181 days 

or less that is secured by the title to a motor vehicle owned by a 

covered borrower, other than a purchase money transaction described in 

paragraph (b)(2)(ii) of this section;

    (iii) Tax refund anticipation loans. Closed-end credit in which the 

covered borrower expressly grants the creditor the right to receive all 

or part of the borrower's income tax refund or agrees to repay the loan 

with the proceeds of the borrower's refund.

    (2) For purposes of this part, consumer credit does not mean:

    (i) Residential mortgages, which are any credit transactions 

secured by an interest in the covered borrower's dwelling, including 

transactions to finance the purchase or initial construction of a 

dwelling, refinance transactions, home equity loans or lines of credit, 

and reverse mortgages;

    (ii) Any credit transaction to finance the purchase or lease of a 

motor vehicle when the credit is secured by the property being 

purchased or leased;

    (iii) Any credit transaction to finance the purchase of personal 

property other than a motor vehicle when the credit is secured by the 

property being purchased; and

    (iv) Any other credit transaction that is not consumer credit 

extended by a creditor, is an exempt transaction, or is not otherwise 

subject to disclosure requirements for purposes of Regulation Z (Truth 

in Lending), 12 CFR Part 226.

    (v) Credit secured by a qualified retirement account as defined in 

the Internal Revenue Code.

    (c) Covered borrower means a person with the following status at 

the time he or she becomes obligated on a consumer credit transaction 

covered by this part:

    (1) A regular or reserve member of the Army, Navy, Marine Corps, 

Air Force, or Coast Guard, serving on active duty under a call or order 

that does not specify a period of 30 days or less, or such a member 

serving on Active Guard and Reserve duty as that term is defined in 10 

U.S.C. 101(d)(6), or

    (2) The member's spouse, the member's child defined in 38 U.S.C. 

101(4), or an individual for whom the member provided more than one-

half of the individual's support for 180 days immediately preceding an 

extension of consumer credit covered by this part.

    (d) Credit means the right granted by a creditor to a debtor to 

defer payment of debt or to incur debt and defer its payment.

    (e) Creditor means a person who is engaged in the business of 

extending consumer credit with respect to a consumer credit transaction 

covered by this part. For the purposes of this section, ``person'' 

includes a natural person, organization, corporation, partnership, 

proprietorship, association, cooperation, estate, trust, and any other 

business entity and who otherwise meets the definition of ``creditor'' 

for purposes of Regulation Z.

    (f) Dwelling means a residential structure that contains one to 

four units, whether or not the structure is attached to real property. 

The term includes an individual condominium unit, cooperative unit, 

mobile home, and manufactured home.

    (g) Electronic fund transfer (EFT) has the same meaning for 

purposes of this part as in Regulation E (Electronic Fund Transfers) 

issued by the Board of Governors of the Federal Reserve System, 12 CFR 

Part 205.

    (h) Military annual percentage rate (MAPR). The MAPR is the cost of 

the consumer credit transaction expressed as an annual rate. The MAPR 

includes the following cost elements associated with the extension of 

consumer credit to a covered borrower if they are financed, deducted 

from the proceeds of the consumer credit, or otherwise required to be 

paid as a condition of the credit: interest, fees, credit service 

charges, credit renewal charges, credit insurance premiums including 

charges for single premium credit insurance, fees for debt cancellation 

or debt suspension agreements, and fees for credit-related ancillary 

products sold in connection with and either at or before consummation 

of the credit transaction. The MAPR does not include a fee imposed for 

actual unanticipated late payments, default, delinquency, or similar 

occurrence. The MAPR does not include tax return preparation fees 

associated with a refund anticipation loan, whether or not the fees are 

deducted from the loan proceeds. The MAPR shall be calculated based on 

the costs in this definition but in all other respects it shall be 

calculated and disclosed following the rules used for calculating the 

Annual Percentage Rate (APR) for closed-end credit transactions under 

Regulation Z (Truth in Lending), 12 CFR Part 226.

    (i) Regulation Z means any of the rules, regulations, or 

interpretations thereof, issued by the Board of Governors of the 

Federal Reserve System to implement the Truth in Lending Act, as 

amended from time to time, including any interpretation or approval 

issued by an official or employee duly authorized by the Board of 

Governors of the Federal Reserve System to issue such interpretations 

or approvals. Words that are not defined in this part have the meanings 

given to them in Regulation Z (12 CFR part 226) issued by the Board of 

Governors of the Federal Reserve System (the ``Board''), as amended 

from time to time, including any interpretation thereof by the Board or 

an official or employee of the Federal Reserve System duly authorized 

by the Board to issue such interpretations. Words that are not defined 

in this part or Regulation Z, or any interpretation thereof, have the 

meanings given to them by State or Federal law, or contract.





Sec.  232.4  Terms of consumer credit extended to covered borrowers.



    (a) A creditor who extends consumer credit to a covered borrower 

and an assignee of the creditor, shall not require the member or 

dependent to pay a military annual percentage rate with respect to such 

extension of credit, except as--

    (1) Agreed to under the terms of the credit agreement or promissory 

note;

    (2) Authorized by applicable State or Federal law; and

    (3) Not specifically prohibited by this part.

    (b) A creditor described in paragraph (a) of this section or an 

assignee may not impose an MAPR greater than 36 percent in connection 

with an extension of consumer credit to a covered borrower.





Sec.  232.5  Identification of covered borrower.



    (a) This part shall not apply to a consumer credit transaction if 

the



[[Page 18169]]



conditions described in paragraphs (a)(1) and (2) of this section are 

met:

    (1) Prior to becoming obligated on the transaction, each applicant 

is provided with a clear and conspicuous ``covered borrower 

identification statement'' substantially similar to the following 

statement and each applicant signs the statement indicating that he or 

she is not a covered borrower:



------------------------------------------------------------------------



-------------------------------------------------------------------------

Federal law provides important protections to active duty members of the

 Armed Forces and their dependents. To ensure that these protections are

 provided to eligible applicants, we require you to sign one of the

 following statements as applicable:

I AM a member of the Armed Forces on active duty.

------------------------------------------------------------------------

I AM a dependent of a member of the Armed Forces on active duty because

 I am the member's spouse, the member's child under the age of eighteen

 years old, or I am an individual for whom the member provided more than

 one-half of my financial support for 180 days immediately preceding

 today's date.

------------------------------------------------------------------------

--OR--

I AM NOT a member of the Armed Forces on active duty (or a dependent of

 such a member).

------------------------------------------------------------------------

Warning: It is important to fill out this form accurately. Knowingly

 making a false statement on a credit application is a crime

------------------------------------------------------------------------



    (2) The creditor has not determined, pursuant to the optional 

verification procedures in paragraph (b) of this section, that any such 

applicant is a covered borrower.

    (b) The creditor may, but is not required to, verify the status of 

an applicant as a covered borrower by requesting the applicant to 

provide a current (previous month) military leave and earning 

statement, or a military identification card (DD Form 2 for members, DD 

Form 1173 for dependents), as described in DoD Instruction 1003.1, 

Identification (ID) Cards for Members of the Uniformed Services, Their 

Dependents, and Other Eligible Individuals, December 5, 1997. Upon such 

request, activated members of the National Guard or Reserves shall also 

provide a copy of the military orders calling the covered member to 

military service and any orders further extending military service.

    (c) The creditor may, but is not required to, verify the status of 

an applicant as a covered borrower by accessing the information 

available at https://www.dmdc.osd.mil/scra/owa/home. Searches require 



the service member's full name, Social Security number, and date of 

birth.

    (d) This part shall not apply to a consumer credit transaction in 

which the creditor rolls over, renews, repays, refinances, or 

consolidates consumer credit in accordance with Sec.  232.8(a)(1) if 

Sec.  232.5(a)(1) and (2) applied to the previous transaction.





Sec.  232.6  Mandatory loan disclosures



    (a) Required information. With respect to any extension of consumer 

credit (including any consumer credit originated or extended through 

the Internet) to a covered borrower, a creditor shall provide to the 

member or dependent the following information clearly and conspicuously 

before consummation of the consumer credit transaction:

    (1) The MAPR applicable to the extension of consumer credit, and 

the total dollar amount of all charges included in the MAPR.

    (2) Any disclosures required by Regulation Z (Truth in Lending), 12 

CFR Part 226.

    (3) A clear description of the payment obligation of the covered 

borrower, as applicable. A payment schedule provided pursuant to 

paragraph (a)(2) of this section satisfies this requirement.

    (4) A statement that ``Federal law provides important protections 

to active duty members of the Armed Forces and their dependents. 

Members of the Armed Forces and their dependents may be able to obtain 

financial assistance from Army Emergency Relief, Navy and Marine Corps 

Relief Society, the Air Force Aid Society, or Coast Guard Mutual Aid. 

Members of the Armed Forces and their dependents may request free legal 

advice regarding an application for credit from a service legal 

assistance office or financial counseling from a consumer credit 

counselor.''

    (b) Method of disclosure. (1) Written disclosures. The creditor 

shall provide the disclosures required by paragraph (a) of this section 

in writing in a form the covered borrower can keep.

    (2) Oral disclosures. The creditor also shall provide the 

disclosures required by paragraphs (a)(1), (3) and (4) of this section 

orally before consummation. In mail and internet transactions, the 

creditor satisfies this requirement if it provides a toll-free 

telephone number on or with the written disclosures that consumers may 

use to obtain oral disclosures and the creditor provides oral 

disclosures when the covered borrower contacts the creditor for this 

purpose.





Sec.  232.7  Preemption.



    (a) Inconsistent laws. 10 U.S.C. 987 as implemented by this 

regulation preempts any State or Federal law, rule or regulation, 

including any State usury law, to the extent such law, rule or 

regulation is inconsistent with this part, except that any such law, 

rule or regulation is not preempted to the extent that it provides 

protection to a covered borrower beyond those protections provided by 

10 U.S.C. 987 and this part.

    (b) Different treatment under State law of covered borrowers 

prohibited. States may not:

    (1) Authorize creditors to charge covered borrowers MAPRs for 

consumer credit higher than the legal limit for residents of the State, 

or

    (2) Permit the violation or waiver of any State consumer lending 

protection that is for the benefit of residents of the State on the 

basis of the covered borrower's nonresident or military status, 

regardless of the covered borrower's domicile or permanent home of 

record, provided that the protection would otherwise apply to the 

covered borrower.





Sec.  232.8  Limitations.



    (a) 10 U.S.C. 987 makes it unlawful for any creditor to extend 

consumer credit to a covered borrower with respect to which:

    (1) The creditor rolls over, renews, repays, refinances, or 

consolidates any consumer credit extended to the covered borrower by 

the same creditor with the proceeds of other consumer credit extended 

by that creditor to the same covered borrower, unless the new 

transaction results in more favorable terms to the covered borrower, 

such as a lower MAPR.

    (2) The covered borrower is required to waive the covered 

borrower's right to legal recourse under any otherwise applicable 

provision of State or Federal law, including any provision of the 

Servicemembers Civil Relief Act (50 U.S.C. App. 527).

    (3) The creditor requires the covered borrower to submit to 

arbitration or



[[Page 18170]]



imposes other onerous legal notice provisions in the case of a dispute.

    (4) The creditor demands unreasonable notice from the covered 

borrower as a condition for legal action.

    (5) The creditor uses a check or other method of access to a 

deposit, savings, or other financial account maintained by the covered 

borrower, or uses the title of a vehicle as security for the 

obligation, except that, in connection with a consumer credit 

transaction with an MAPR consistent with Sec.  232.4(b):

    (i) The creditor may require an electronic fund transfer to repay a 

consumer credit transaction, unless otherwise prohibited by Regulation 

E (Electronic Fund Transfers) 12 CFR Part 205;

    (ii) The creditor may require direct deposit of the consumer's 

salary as a condition of eligibility for consumer credit, unless 

otherwise prohibited by law; or

    (iii) The creditor may, if not otherwise prohibited by applicable 

law, take a security interest in funds deposited after the extension of 

credit in an account established in connection with the consumer credit 

transaction.

    (6) The creditor requires as a condition for the extension of 

consumer credit that the covered borrower establish an allotment to 

repay the obligation.

    (7) The covered borrower is prohibited from prepaying the consumer 

credit or is charged a penalty fee for prepaying all or part of the 

consumer credit.

    (b) For purposes of this section, an assignee may not engage in any 

transaction or take any action that would be prohibited for the 

creditor.





Sec.  232.9  Penalties and remedies.



    (a) Misdemeanor. A creditor or assignee who knowingly violates 10 

U.S.C. 987 as implemented by this part shall be fined as provided in 

title 18, United States Code, or imprisoned for not more than one year, 

or both.

    (b) Preservation of other remedies. The remedies and rights 

provided under 10 U.S.C. 987 as implemented by this part are in 

addition to and do not preclude any remedy otherwise available under 

law to the person claiming relief under the statute, including any 

award for consequential damages and punitive damages.

    (c) Contract void. Any credit agreement, promissory note, or other 

contract with a covered borrower which fails to comply with 10 U.S.C. 

987 as implemented by this regulation or which contains one or more 

provisions prohibited under 10 U.S.C. 987 as implemented by this 

regulation is void from the inception of the contract.

    (d) Arbitration. Notwithstanding 9 U.S.C. 2, or any other Federal 

or State law, rule, or regulation, no agreement to arbitrate any 

dispute involving the extension of consumer credit involving a covered 

borrower pursuant to this part shall be enforceable against any covered 

borrower, or any person who was a covered borrower when the agreement 

was made.





Sec.  232.10  Servicemembers Civil Relief Act protections unaffected.



    Nothing in this part may be construed to limit or otherwise affect 

the applicability of Section 207 and any other provisions of the 

Servicemembers Civil Relief Act (50 U.S.C. App. 527).





Sec.  232.11  Effective date and transition.



    Applicable consumer credit--This part shall only apply to consumer 

credit that is extended to a covered borrower and consummated on or 

after October 1, 2007.



    Dated: April 5, 2007.

L.M. Bynum,

Alternate OSD Federal Register Liaison Officer, DOD.

[FR Doc. 07-1780 Filed 4-6-07; 12:20 pm]

BILLING CODE 5001-06-P



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