BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551
DIVISION OF CONSUMER
AND COMMUNITY AFFAIRS
CA 07-05
September 20, 2007
TO THE OFFICERS AND MANAGERS IN CHARGE OF CONSUMER AFFAIRS SECTIONS AT EACH FEDERAL RESERVE BANK AND EACH DOMESTIC AND FOREIGN BANKING ORGANIZATION SUPERVISED BY THE FEDERAL RESERVE:
SUBJECT: The Department of Defense’s Final Rule on Limitations on Consumer Credit Extended to Service Members and Dependents (“Talent Amendment”)
The Department of Defense (DoD) has published the attached final rule which contains limitations and requirements for certain types of consumer credit extended to active duty service members or their dependents ("covered borrowers"). The rule covers payday loans, motor vehicle title loans, and tax refund anticipation loans, as defined by DoD, and applies to all persons engaged in the business of extending such credit and their assignees. The rule implements the consumer protection provisions of section 670 of the John Warner National Defense Authorization Act for Fiscal Year 2007.1
For covered transactions, the DoD rules limit the amount that the creditor can charge in interest and fees, including charges imposed for single premium credit insurance and other ancillary products sold in connection with the transaction. The total charges must be expressed as an annualized rate referred to as the "military annual percentage rate" or "MAPR," which may not exceed 36 percent. Because the MAPR includes charges that are not included in the finance charge or APR disclosed under the Truth in Lending Act (TILA), the MAPR is required to be separately disclosed for covered transactions. Among other provisions, the DoD rules:
- Provide a safe harbor and model form for creditors to use in identifying covered borrowers;
- Require creditors to provide written and oral disclosures in addition to those required by TILA;
- Prohibit certain loan terms, such as prepayment penalties, mandatory arbitration clauses, and unreasonable legal notice requirements; and,
- Restrict loan rollovers and refinancings.
Under the statute, creditors that knowingly violate the rules may be subject to criminal penalties, and a credit agreement that is prohibited under the rules is void from inception.
The final rule takes effect on October 1, 2007, and will apply to covered transactions that are consummated on or after that date. Creditors that engage in covered transactions are expected to be in full compliance by that date.
Federal Reserve Banks are asked to distribute this letter and the accompanying attachment to banking organizations (including bank holding companies) supervised by the Federal Reserve in their districts, as well as to supervisory and examination staff. If you have any questions concerning this guidance, please contact Brent Lattin at (202) 452-3667, or Eric Morris at (202) 452-3946 in the Board's Division of Consumer and Community Affairs.
Sincerely,
(signed)
Sandra F. Braunstein
Director
Division of Consumer and Community Affairs
Notes:
CA letters | 2007 Letters