Vol. 79 Monday, 

No. 188 September 29, 2014 

Part VI 

Department of Defense 

Office of the Secretary 

32 CFR Part 232 

Limitations on Terms of Consumer Credit Extended to Service Members 

and Dependents; Proposed Rule 


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58602 Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 

1The forms of ‘‘consumer credit’’ that may be 

covered by the MLA are subject to certain 

exceptions, notably for a residential mortgage. 10 

U.S.C. 987(i)(6)(A) and 987(i)(6)(B). 

2See 12 CFR 1026.1(c)(1)(iii) (limiting the 

coverage of the regulation, in relevant part, to credit 

that is subject to a finance charge or is payable by 

a written agreement in more than four installments). 

DEPARTMENT OF DEFENSE 

Office of the Secretary 

32 CFR Part 232 

[DOD–2013–OS–0133] 

RIN 0790–AJ10 

Limitations on Terms of Consumer 

Credit Extended to Service Members 

and Dependents 

AGENCY: Under Secretary of Defense for 

Personnel and Readiness, Department of 

Defense. 

ACTION: Proposed rule. 

SUMMARY: The Department of Defense 

(‘‘Department’’) proposes to amend its 

regulation that implements the Military 

Lending Act, herein referred to as the 

‘‘MLA’’. Among other protections for 

Service members, the MLA limits the 

amount of interest that a creditor may 

charge on ‘‘consumer credit’’ to a 

maximum annual percentage rate of 36 

percent. The Department is proposing to 

amend its existing regulation primarily 

for the purpose of extending the 

protections of the MLA to a broader 

range of closed-end and open-end credit 

products, rather than the limited credit 

products currently defined as consumer 

credit. In addition, the Department is 

proposing to amend its existing 

regulation to amend the provisions 

governing a tool a creditor may use in 

assessing whether a consumer is a 

‘‘covered borrower,’’ modify the 

disclosures that a creditor must provide 

to a covered borrower, implement the 

enforcement provisions of the MLA, as 

amended, and for other purposes. 

DATES: Comments must be submitted 

not later than November 28, 2014. 

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, 4800 Mark Center Drive, 

2nd Floor, East Tower, Suite 02G09, 

Alexandria, VA 22350–3100. 

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:// 

www.regulations.gov as they are 

received without change, including any 

personal identifiers or contact 

information. 

FOR FURTHER INFORMATION CONTACT: 

Marcus Beauregard, 571–372–5357. 

SUPPLEMENTARY INFORMATION: 

Retrospective Review 

This rule is part of DoD’s 

retrospective plan, completed in August 

2011, under Executive Order 13563, 

‘‘Improving Regulation and Regulatory 

Review.’’ DoD’s full plan and updates 

can be accessed at: http:// 

www.regulations.gov/#!docketDetail;

dct=FR+PR+N+O+SR;rpp=10;po=0;

D=DOD-2011-OS-0036. 

I. Executive Summary 

A. Purpose of the Regulatory Action 

The Department is proposing to 

amend its existing regulation primarily 

for the purpose of extending the 

protections of 10 U.S.C. 987 to a broader 

range of closed-end and open-end credit 

products, rather than the limited credit 

products currently defined as consumer 

credit. More specifically, the 

Department proposes to amend its 

regulation so that, in general, consumer 

credit covered under the MLA 1 would 

be defined consistently with credit that 

for decades has been subject to the 

protections under the Truth in Lending 

Act (TILA), namely: Credit offered or 

extended to a covered borrower 

primarily for personal, family, or 

household purposes, and that is (i) 

subject to a finance charge or (ii) 

payable by a written agreement in more 

than four installments.2

After observing the effects of its 

existing regulation during the past six 

years and based on its review of 

information provided by a wide variety 

of persons and entities, the Department 

believes that this proposal to amend the 

regulation is appropriate in order to 

address a wider range of credit products 

that currently fall outside the scope of 

the regulation implementing the MLA, 

streamline the information that a 

creditor would be required to provide to 

a covered borrower when 

consummating a transaction involving 

consumer credit, and provide a more 

straightforward mechanism for a 

creditor to assess whether a consumerapplicant is a covered borrower. In this 

regard, the Department is aware of 

misuses of the covered borrower 

identification statement whereby a 

Service member (or covered dependent) 

falsely declares that he or she is not a 

covered borrower. The Department 

believes that, if a creditor unilaterally 

conducts a covered-borrower check by 

using the MLA Database, a Service 

member or his or her dependent would 

be relieved from making any statement 

regarding his or her status as a covered 

borrower. 

The Department is provided authority 

in 10 U.S.C 987(h) to establish 

regulations to implement the MLA. As 

described in 10 U.S.C. 987(h)(3) the 

Department, at a minimum, must 

consult with other Federal agencies ‘‘not 

less often than once every two years’’ 

with a view towards revising the 

regulation implementing the MLA. 

B. Summary of the Major Provisions of 

the Department’s Regulatory Action 

The MLA, as implemented by the 

Department’s regulation as well as 

under this proposed regulation, 

provides two broad classes of 

requirements applicable to a creditor: 

first, the creditor may not impose a 

Military Annual Percentage Rate 

(MAPR) greater than 36 percent in 

connection with an extension of 

consumer credit to a covered borrower 

(‘‘interest-rate limit’’); second, when 

extending consumer credit, the creditor 

must satisfy certain other terms and 

conditions, such as providing certain 

information (e.g., a statement of the 

MAPR), both orally and in a form the 

borrower can keep, before or at the time 

the borrower becomes obligated on the 

transaction or establishes the account, 

by refraining from requiring the 

borrower to submit to arbitration in the 

case of a dispute involving the 

consumer credit, and by refraining from 

charging a penalty fee if the borrower 

prepays all or part of the consumer 

credit (collectively, ‘‘other MLA 

conditions’’). 

C. Costs and Benefits 

The Department anticipates that its 

regulation, if adopted as proposed, 

might impose costs of approximately 

$96 million during the first year, as 

creditors adapt their systems to comply 

with the requirements of the MLA and 

the Department’s regulation. However, 

after the first year and on an ongoing 

basis, the annual effect on the economy 

is expected to be between 

approximately $13 to $137 million. The 

Department has estimated the potential 

savings that could result if the rule 

reduces the involuntary separations of 

Service members due to financial 

distress in sensitivity analyses; at some 

points in the range of estimates the 


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Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 58603 

3 32 CFR part 232 (2013). 

4Public Law 109–364, 120 Stat. 2266. 

5Public Law 112–239, 126 Stat. 1785. 

6 Id. See section 662(a) of the 2013 Act. 

7 126 Stat. 1786. See section 662(b) of the 2013 

Act. 

8 126 Stat. 1786 (defining ‘‘dependent’’ to be a 

person described in subparagraph (A), (D), (E), or 

(I) of 10 U.S.C. 1072(2)). 

9Limitations on Terms of Consumer Credit 

Extended to Service Members and Dependents, 72 

FR 50580 (Aug. 31, 2007). 

10 Department of Defense, Report On Predatory 

Lending Practices Directed at Members of the 

Armed Forces and Their Dependents (August 9, 

2006), available at http://www.defense.gov/pubs/

pdfs/Report_to_Congress_final.pdf. 

11 72 FR at 50585. 

12 32 CFR 232.3(b)(1)(i) (definition of ‘‘consumer 

credit’’). 

13See, e.g., section III.A.1 (describing information 

submitted by various persons in response to the 

Department’s June 2013 advance notice of proposed 

rulemaking). 14The forms of ‘‘consumer credit’’ that may be 

covered by the MLA are subject to certain 

exceptions, notably for a residential mortgage. 10 

U.S.C. 987(i)(6)(A) and 987(i)(6)(B). 15See 12 CFR 1026.1(c)(1)(iii) (limiting the 

coverage of the regulation, in relevant part, to credit 

that is subject to a finance charge or is payable by 

a written agreement in more than four installments). 16 12 CFR part 1026 (2013). 

Department has used to assess the 

proposal, these savings are estimated to 

exceed the compliance costs that would 

be borne by creditors. 

FIGURE 1—SUMMARY OF ESTIMATED EFFECTS OF PROPOSED RULE

[2013 dollars in millions] 

First year Annual, 

ongoing 

PV 10-year, 

7% discount 

rate 

PV 10-year, 

3% discount 

rate 

Sensitivity Analysis: Benefits to the Department .............................. Low ... $0 $13 $96 $128 

High .. 0 137 970 1,304 

Primary Analysis: Costs to Creditors of Compliance ........................ ........... 96 20 144 194 

Primary Analysis: Transfer Payments ............................................... Low ... NA 101 717 958 

High .. NA 120 856 1,139 

II. Background 

A. Overview of the Proposal 

The Department proposes to amend 

its regulation 3 that implements 10 

U.S.C. 987, which was enacted in 

section 670 of the John Warner National 

Defense Authorization Act for Fiscal 

Year 2007,4 and amended by sections 

661–663 of the National Defense 

Authorization Act for Fiscal Year 2013 

(‘‘2013 Act’’).5

The 2013 Act amended several 

provisions of 10 U.S.C. 987. In 

particular, the 2013 Act added 

provisions that would permit a covered 

borrower to recover damages from a 

creditor who violates a requirement of 

the MLA,6 and authorizes the agencies 

‘‘specified in section 108 of the Truth in 

Lending Act’’ [‘‘TILA’’] to enforce the 

requirements of the MLA ‘‘in the 

manner set forth in that section [of 

TILA] or under any other applicable 

authorities available to such agencies by 

law.’’ 7 Section 663 of the 2013 Act 

modified the definition of ‘‘dependent’’ 

in order to make the meaning of that 

term consistent with parts of the 

definition that applies in the context of 

eligibility of a Service member’s 

dependent for military medical care.8 In 

addition, section 661 of the 2013 Act 

amended the MLA to require the 

Department to consult—‘‘not less often 

than once every two years’’—with the 

Board of Governors of the Federal 

Reserve System, the Consumer 

Financial Protection Bureau (‘‘Bureau’’), 

the Department of the Treasury, the 

Federal Deposit Insurance Corporation, 

the Federal Trade Commission, the 

National Credit Union Administration, 

and the Office of the Comptroller of the 

Currency (collectively, ‘‘Federal 

Agencies’’) with a view towards revising 

the regulation implementing the MLA. 

In August 2007, the Department 

published its regulation to implement 

the MLA.9 When initially determining 

the extent to which the protections of 

the MLA should apply, the Department 

‘‘focus[ed] 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 [(‘‘2006 

Report’’)] 10: Payday loans, vehicle title 

loans, and refund anticipation loans.’’ 11

The Department elected, at that time, to 

define the scope of ‘‘consumer credit’’ 

covered by the regulation as a narrow 

band of products within these three 

categories of credit; for example, the 

rule defines a ‘‘payday loan,’’ in 

relevant part, as ‘‘[c]losed-end credit 

with a term of 91 days or fewer in which 

the amount financed does not exceed 

$2,000.’’ 12

After observing the effects of its 

existing regulation, the Department 

believes that a wider range of credit 

products offered or extended to Service 

members reasonably could—and 

should—be subject to the protections of 

the MLA, and that the extremely narrow 

definition of ‘‘consumer credit’’ permits 

creditors to structure credit products in 

order to reduce or avoid altogether the 

obligations of the MLA. For example, if 

a creditor wishes to market a ‘‘payday 

loan’’ to a Service member without 

regard to the 36-percent interest-rate 

limit under the MLA, the creditor 

simply needs to adjust the terms or 

conditions so that the loan is (i) not 

closed-end credit, (ii) for a term longer 

than 91 days, or (iii) for an amount of 

more than $2,000. Making any of these 

elementary adjustments to a credit 

product marketed as a ‘‘payday loan’’ is 

not illegal, however, the effect is clear: 

a Service-member borrower would 

obtain the credit without the protections 

afforded under the MLA. The 

Department’s proposal aims to amend 

the regulation to curb this unfortunate 

consequence, of which there is ample 

evidence in the credit markets in which 

Service members are active 

participants.13

The Department proposes to amend 

its regulation so that, in general, 

consumer credit covered under the 

MLA 14 would be defined consistently 

with credit that for decades has been 

subject to the protections under TILA, 

namely: credit offered or extended to a 

covered borrower primarily for 

personal, family, or household 

purposes, and that is (i) subject to a 

finance charge or (ii) payable by a 

written agreement in more than four 

installments.15 In general, under the 

Department’s proposal, any charge that 

is a ‘‘finance charge’’ under Regulation 

Z,16 adopted by the Bureau, as well as 

certain other charges that would be 

covered as ‘‘interest’’ under 10 U.S.C. 

987(i)(3), must be included in the 

calculation of the MAPR, as applicable 

to the transaction for consumer credit. 

However, the Department also proposes 

to provide a broad exclusion that would 

allow a creditor who offers consumer 

credit through a credit card account to 


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58604 Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 

17 72 FR at 50588. 

18Limitations on Terms of Consumer Credit 

Extended to Service Members and Dependents, 72 

FR 18157, 18165 (April 11, 2007) (in the context of 

disclosure requirements, explaining one of the 

policies for the Department’s proposed regulation 

implementing the MLA). 

19U.S. Dep’t of Def., 2012 Demographics Profile 

of the Military Community, at 36. Available at 

http://www.militaryonesource.mil/12038/MOS/

Reports/2012_Demographics_Report.pdf. 

20 Id. at 17. 

21 Id. at 44. 

22 Id. at 128. 

23U.S. Census Bureau, U.S. Dep’t of Commerce, 

Statistical Abstract of the United States 2012 table 

57 (131st ed. 2011) (11.7 percent of individuals 

aged 18 through 24 who are not in the military are 

married). 

24 Defense Manpower Data Center (DMDC) 

QuickCompass of Financial Issues, 2013, Question 

30: Have [you][your and/or your spouse][you and/ 

or your significant other] used any of the following 

financial products or services to cover expenses in 

the past 12 months?’’ 

25 Id., Question 13: ‘‘Which of the following best 

describes [your financial condition][the financial 

condition of you and your spouse][the financial 

condition of you and your partner or significant 

other]?’’ 

26 Id., Question 15: ‘‘Which of the following best 

describes [your saving habits][the savings habits of 

you and your spouse][the savings habits of you and 

your partner or significant other]? I[We]:’’ 

exclude from the MAPR any ‘‘bona fide’’ 

fee charged to a credit card account, as 

discussed more fully in this proposal. 

The chief consequence of the proposed 

exclusion from the MAPR for bona fide 

fees is that a creditor who, for its credit 

card product(s), currently charges a 

periodic interest rate of less than the 

interest-rate limit under 10 U.S.C. 

987(b) coupled with one or more fees 

that carry reasonable costs tied to 

specific products or services should be 

able to continue to offer the same 

product(s) without any adjustments to 

those price terms. Under the proposal, 

that creditor would need to confirm that 

its fees are bona fide, reasonable and 

customary, and if so, it should be able 

to continue to offer the same credit card 

product(s) to covered borrowers by 

making limited adjustments only to the 

‘‘statement of the MAPR,’’ which would 

be permitted simply to be added to its 

credit card agreement(s) (and not 

required to be provided in any 

advertisement), as discussed below. 

In addition, the Department is 

proposing to revise its regulation to 

provide a creditor with a more 

straightforward mechanism to assist in 

assessing the status of a consumer as a 

covered borrower, in order that the 

creditor may have ‘‘some degree of 

certainty in determining that the loans 

[the creditor makes] are in compliance 

with [the MLA] as implemented by Part 

232.’’ 17 The Department believes that a 

covered-borrower check could be 

conducted unilaterally by a creditor by 

checking the database maintained by the 

Department and without relying on the 

borrower (as currently required), akin to 

the process a creditor currently uses to 

obtain a consumer report when 

assessing the creditworthiness of a 

consumer. Accordingly, the Department 

proposes to amend the regulation to 

allow a creditor to access the 

Department’s online database (the MLA 

Database) to assess the status of a 

consumer-applicant for consumer credit 

and, as discussed below, thereby 

provide a clearer mechanism for a 

creditor to obtain the protection of a safe 

harbor when determining whether a 

consumer is a covered borrower. 

Consistent with the Department’s 

longstanding policy in administering 10 

U.S.C. 987, the Department intends to 

develop this regulation so that its 

provisions are true to the intent of the 

MLA without creating a system that 

unduly impedes the availability of 

credit that is beneficial to Service 

members or is so burdensome that the 

creditor cannot comply.18

The Department seeks comment on all 

aspects of this proposal. The 

Department also solicits information 

and data regarding the nature, scope, 

and prevalence of credit products 

offered or extended to Service members 

and their families. 

In particular, the Department seeks 

comment on the following alternative: 

1. Refining the Department’s current 

rule for payday loans, vehicle title loans 

and refund anticipation loans—and the 

associated benefits and costs; 

2. Refining the Department’s current 

rule and adding all payday loans—and 

the associated benefits and costs; and 

3. Adoption of Regulation Z for 

consumer credit products—and the 

associated benefits and costs; 

As required by 10 U.S.C. 987(h)(3), in 

developing this proposal the 

Department has consulted with the 

Federal Agencies. The Department will 

continue to consult with these agencies 

throughout the process of considering 

revisions to the regulation 

implementing the MLA. 

B. Financial Status of Enlisted Service 

Members 

In the 2006 Report, the Department 

provided perspective on why the issue 

of maintaining the financial stability of 

Service members and their families is 

critical to sustaining the all-volunteer 

force and maintaining its readiness. 

These concerns remain relevant today. 

Service members still represent a 

predominantly young group with 43 

percent of Service members aged 25 

years old or younger.19 The junior 

enlisted ranks (E1–E4) comprise 44 

percent of the military force.20 Thirty 

five percent of E1s–E4s are married 21

and 20 percent of them have children or 

other legal dependents.22 Considering 

only 11.7 percent of young people in the 

United States who are out of the 

military are married at a comparative 

age, Service members tend to take on 

relatively more household 

responsibilities than their civilian 

counterparts.23

Forty-one percent of enlisted Service 

members (46% of E1s–E4s) said they 

had used one or more sources of small 

dollar lending in the past 12 months. 

These sources included payday loans, 

vehicle title loans, bank deposit advance 

loans, pawn shop loans, cash advances 

on credit cards, overdraft loans, 

overdraft lines of credit, overdraft 

protection from other accounts, relief 

society loans, and loans from friends 

and family.24 About 62% of enlisted 

Service members selected responses 

indicating that they were able to make 

ends meet without difficulty. Twelve 

percent selected the responses ‘‘tough to 

make ends meet but keeping your head 

above water,’’ or ‘‘in over your head’’ to 

describe their financial condition.25

About 26% selected the response 

‘‘occasionally have some difficulty 

making ends meet.’’ 

When asked about their savings 

habits, 14% of enlisted Service members 

selected the option ‘‘spend all the 

income received and don’t save’’ and 

4% selected the option ‘‘don’t know.’’ 

Forty-four percent selected the option 

‘‘regularly set aside money in savings.’’ 

The remaining 39% selected the option 

‘‘save whatever is left at the end of the 

month.’’ When asked about their 

savings, about 57% of enlisted Service 

members indicated that they had at least 

$500 in savings that would be available 

for emergencies. Eight percent indicated 

that they have less than $100 and 17% 

indicated that they have no emergency 

savings.26

When asked about experiencing any 

shortfalls in finances, 47% of enlisted 

Service members reported having 

problems in the past 12 months. 

Specifically, 9% said they had been 

more than 60 days late in paying 

mortgage or other debts, 17% reported 

that they were unable to use bank credit 

card(s) because the credit limit was 

reached, 44% reported that they were 

short cash between paychecks and 12% 

indicated that they were unable to pay 


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Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 58605 

27 Id., Question 28: ‘‘During the past 12 months, 

did any of the following happen to [you][you and 

your spouse][you and your partner or significant 

other]? [I was][We were] . . .’’ 

28 Id., Question 29: ‘‘In how many of the past 12 

months were [you][you and your spouse][you and 

your significant other] short on cash, unable to use 

a credit card because of the credit limit was 

reached, or unable to pay bills or other debts?’’ 

29U.S. Dep’t of Def., Instruction 1344.09, 

Indebtedness of Military Personnel (2008) 

(‘‘Members of the Military Services are expected to 

pay their just financial obligations in a proper and 

timely manner [to include alimony and child 

support]. A Service member’s failure to pay a just 

financial obligation may result in disciplinary 

action under the Uniform Code of Military Justice 

[10 U.S.C. 801–940] or a claim pursuant to Article 

139 of [10 U.S.C. 801–940].’’). 

30U.S. Gov’t Accountability Office, GAO–11–170, 

Military Personnel: Personnel and Cost Data 

Associated with Implementing DOD’s Homosexual 

Conduct Policy (January 20, 2011) (estimating that 

each separation costs the Department $52,800 in 

2009 dollars). The cost of $57,272 is calculated in 

2013 dollars (through November 2013), using the 

U.S. Dep’t of Labor, Bureau of Labor Statistics, 

Consumer Price Index, All Urban Consumers (CPI– 

U), available at ftp://ftp.bls.gov/pub/

special.requests/cpi/cpiai.txt. 

31Scott Carrell and Jonathan Zinman, ‘‘In Harm’s 

Way? Payday Lending and Military Personnel 

Performance,’’ August 2008, Abstract. 

32 DMDC Survey, question 20: 39% of E1–E4s 

have a high school diploma, 22% have less than 

one year of college, 24% have one or more years 

of college, but no degree. 

33Average score for high school seniors was 

48.3% and 62.2% for college students on a financial 

literacy test measuring (1) Income; (2) money 

management; (3) saving and investing; and (4) 

spending and credit. Jump$tart Coalition survey of 

high school seniors and college students, 2008, page 

8. www.jumpstart.org/assets/files/

2008SurveyBook.pdf. 

34Military Saves 2013 Report, page 2, http://

www.militarysaves.org/in-the-newsroom/militarysaves-week-reports. 

35 ‘‘Military Financial Readiness Program— 

Accomplishments To Date,’’ SaveandInvest.org, 

About the Program, http://www.saveandinvest.org/ 

MilitaryCenter/About/P124822. 

36 DoD Instruction 1342.22, Family Readiness 

Program, July 3, 2012, page 12, http://www.dtic.mil/ 

whs/directives/corres/pdf/134222p.pdf. 

37 ‘‘Fiscal Year 2012 Annual Report on Family 

Readiness Programs’’ (internal DoD report), which 

reflects activities of installation-based Military and 

Family Support Centers/Reserve Family Program 

Sites.] 

38Military OneSource internal report for Fiscal 

Year 2012. 

monthly bills.27 When asked about how 

many months in the past 12 were they 

short on cash, unable to use a credit 

card because of the credit limit was 

reached, or unable to pay bills or other 

debts, 12% said 5 to 7 months and 11% 

said 8 or more months. The average 

response was 3.4 months in a 12-month 

period.28

The results of the Defense Manpower 

Data Center (‘‘DMDC’’) QuickCompass 

on Financial Issues tends to indicate 

that most Service members report 

sufficient access to safe, low-cost credit, 

report few problems managing their 

finances, and report little use of or 

impact by high-cost credit products on 

their financial lives. Nevertheless, the 

DMDC survey results also tend to 

indicate that a substantial minority of 

Service members continue to report 

difficulty managing their finances, and 

little access to safe, low-cost credit 

options. While the relative size of these 

two groups varies across the different 

types of financial indicators surveyed, 

the Department estimates that between 

12 and 25% of enlisted Service 

members may face emergency financial 

short-falls and indicate difficulties 

managing their finances and avoiding 

problems with credit. 

C. Financial Stability and Readiness 

The Department makes a significant 

investment in recruiting, training and 

retaining highly qualified Service 

members. The Department expects these 

Service members to maintain personal 

readiness standards, including paying 

their debts and maintaining their ability 

to attend to the financial needs of their 

families.29 Losing qualified Service 

members due to personal issues, such as 

financial instability, causes loss of 

mission capability and drives significant 

replacement costs. The Department 

estimates that each separation costs the 

Department $57,333.30 Losing an 

experienced mid-grade 

noncommissioned officer (NCO), who 

may be in a leadership position or key 

technical position, may be considerably 

more expensive in terms of replacement 

costs and in terms of the degradation of 

mission effectiveness resulting from a 

loss of personal reliability for 

deployment and availability for duty. A 

study of the potential impact of the use 

of payday loans on enlisted members in 

the Air Force found ‘‘significant average 

declines in overall job performance and 

retention, and significant increases in 

severely poor readiness,’’ as a result of 

using payday loans.31 Additionally, 

financial concerns detract from mission 

focus and often times require attention 

from commanding officers and senior 

NCOs to resolve outstanding debts and 

other credit issues. 

D. Financial Readiness Program 

As young people with steady pay 

checks and personal responsibilities 

which emerge earlier than their 

contemporaries, junior enlisted Service 

members need to have a commensurate 

level of financial acumen and maturity 

to succeed. Junior enlisted Service 

members are generally high school 

graduates who may have started 

college.32 Prior to entering the military 

they may have had limited exposure to 

financial literacy programs within high 

school, but they are generally 

unprepared for their financial 

responsibilities.33 The Department has 

established the Financial Readiness 

Program to assist Service members in 

dealing with financial concerns, by 

providing messaging, education, and 

assistance. Throughout each year, the 

Department provides key messages on 

personal finance to the military 

community as part of a strategic 

communications plan that includes 

press releases, news articles, interviews, 

Web sites and social media. The 

Department has the assistance of 

nonprofit organizations in delivering 

messages and programs to promote 

savings and sound money management. 

The Department annually promotes the 

‘‘Military Saves Campaign,’’ which 

occurs at the end of February each year 

as part of ‘‘America Saves,’’ sponsored 

by the Consumer Federation of America. 

The campaign asks Service members 

and their families to pledge towards 

their own savings goals, and the 

campaigns are supported by banks and 

credit unions on military installations. 

Initiated in 2007, the campaign has 

signed up 31,527 savers through 2013.34

Additionally, the Financial Institutions 

National Regulatory Authority (FINRA) 

Foundation sponsors the ‘‘Save and 

Invest Program’’ that has provided 

forums at military installations (33,000 

participants), fellowships for 1,200 

military spouses to earn a financial 

counselor credential and give back to 

the community through 355,000 

practicum hours, assistance to wounded 

warriors (17,000 guides distributed), 

800,000 booklets on managing money 

during military moves and 

deployments, and access to no cost online tools to assist 150,000 military 

families with managing credit.35

The Department has established 

policy requiring Service members to 

receive financial education throughout 

their military careers, commencing with 

an initial course provided within 3 

months of having arrived at their first 

duty station. As Service members 

assume supervision of others, they are 

also provided information on policies 

and practices designed to protect junior 

military members.36 Each of the Military 

Services manages its own educational 

program to fulfill this requirement, 

based on regulations from the Military 

Departments. For Fiscal Year 2012, the 

Military Services reported providing 

34,867 briefings to 872,187 

participants.37 In addition, the National 

Guard and Reserve Commands 

conducted 8,912 sessions, hosted at unit 

events lasting one-to-three days, 

attended by 13,480 participants.38


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39 ‘‘Fiscal Year 2012 Annual Report on Family 

Readiness Programs’’ (internal DoD report), which 

reflects activities of installation-based Military and 

Family Support Centers/Reserve Family Program 

Sites.] 

40Military OneSource internal report for Fiscal 

Year 2012. 

41See Army Emergency Relief, Soldiers Helping 

Soldiers: Army Emergency Relief 2012 Annual 

Report, at 13 (2013) (in 2012, Army Emergency 

Relief provided $19.1 million in ‘‘Commander 

Referral Loans’’); Air Force Aid Soc’y, Air Force 

Aid Society 2012 Annual Report, at 6 (2013) (in 

2012, the Air Force Aid Society provided half of its 

$10.1 million in emergency assistance ‘‘Falcon 

Loans’’); Coast Guard Mut. Assistance, 2012 Annual 

Report, at 2 (2013) (in 2012, Coast Guard Mutual 

Assistance provided $212,000 in quick loans). 

42See Army Emergency Relief, Soldiers Helping 

Soldiers: Army Emergency Relief 2012 Annual 

Report, at 13 (2013); Navy-Marine Corps Relief 

Society, 2012 Annual Report, at 11 (2013); Air 

Force Aid Soc’y, Air Force Aid Society 2012 

Annual Report, at 6 (2013); Coast Guard Mut. 

Assistance, 2012 Annual Report, at 2 (2013). 

43 Dep’t of Defense, Report: Enhancement of 

Protections on Consumer Credit for Members of the 

Armed Forces and Their Dependents, April 2014. 

44See, e.g., April 2014 Report, at 2. 45April 2014 Report, at 2. 46 Id. 47 Id. 

Department policy also requires the 

Military Services to provide one-on-one 

counseling to help a Service member 

determine appropriate short and long 

term actions to alleviate debt and 

achieve financial goals. The Military 

Services employ at least one certified 

financial counselor (civil service or 

contractor) at each military installation 

and have developed Military Servicespecific programs to extend counseling 

into the military units through 

designated approved financial 

educators. For example, the Department 

of the Navy directs Navy and Marine 

Corps units to designate and train a 

Command Financial Specialist (E6 or 

above) who delivers financial education, 

conducts basic counseling and makes 

referrals to certified counselors. The 

Military Services reported 1,828,299 

brief counseling contacts and 161,992 

extended counseling contacts for Fiscal 

Year 2012.39 To supplement the 

counseling services provided by the 

Military Services, the Department 

employs contract counselors through 

Military One Source to conduct overthe-phone counseling (available 24/7) 

and 12 in-person sessions for each 

military client (in a 12 month period). 

These counselors provided 32,000 inperson sessions for 35,000 Service 

members and spouses in Fiscal Year 

2012.40

To provide monetary support to 

Service members and their families with 

financial hardships, the Military 

Services have partnered with nonprofit 

charitable organizations chartered to 

provide relief services to Service 

members and their families. The four 

relief societies for the Military Services 

(Army Emergency Relief, Navy-Marine 

Corps Relief Society, Air Force Aid 

Society and Coast Guard Mutual 

Assistance) (collectively, the ‘‘Relief 

Societies’’) provide no-interest loans, 

grants, and scholarships, and fund other 

support programs for active-duty 

military communities. Each of these 

Relief Societies traditionally has 

provided no-interest loans and grants 

for shortfalls in household expenses 

(e.g., rent, mortgage, or utilities) and for 

unforeseen emergencies (e.g., auto 

repair, funeral, or family emergency). 

Since 2007, each of the Relief Societies 

also has offered small-dollar loans, 

which can be drawn without 

counseling.41 In total for 2012, the Relief 

Societies provided $142.2 million in nointerest loans and grants to 159,745 

clients.42

E. Regulation in Support of Financial 

Readiness 

The Department continues to believe 

that, consistent with the MLA, there 

may be a need to limit access to highcost borrowing, even with the 

Department’s emphasis on delivering 

messages to save and control debt, 

education to support managing finances 

wisely, counseling resources to aid 

Service members, and financial 

resources to help Service members 

cover unforeseen shortfalls and 

emergencies. As initially stated, the 

Department expects Service members to 

manage their resources to cover their 

just debts and to take care of the needs 

of their families. Additionally, as 

messaging and education programs 

make clear, the Department expects 

Service members to seek out assistance 

rather than continue attempting by 

themselves to manage high-cost debt. 

In the House Report 112–705 

accompanying the 2013 Act, the 

Department was asked ‘‘to determine if 

changes to rules implementing [the 

MLA] are necessary to protect covered 

borrowers from continuing and evolving 

predatory lending practices.’’ The 

Department responded to the request of 

the House Report by issuing a report in 

April 2014 (‘‘April 2014 Report’’).43 The 

April 2014 Report presents data 

submitted by many sources, including 

anecdotal information, that assisted in 

responding to the request of the House 

Report. The Department recognizes that 

information submitted for the April 

2014 Report was provided by numerous 

sources, including some surveys 

conducted by the Department, and the 

information does not yield definitive 

results; rather, as the April 2014 Report 

states, the data ‘‘tend to indicate’’ some 

findings 44 and, for many issues, raise 

important questions that might involve 

further examination. The April 2014 

Report states—specifically in light only 

of the research and consultation in 

preparing that Report—that ‘‘the 

definitions of [consumer credit] in the 

implementing regulation for the MLA 

do need to be updated and expanded to 

ensure that the MLA continues to 

provide protections to Service members 

and their families.’’ 45 While observing 

that certain conditions ‘‘appear’’ to 

warrant revising the definition of 

‘‘consumer credit,’’ 46 the Department 

has drawn no conclusions regarding the 

scope or terms of its regulation 

implementing the MLA. Rather, the 

April 2014 Report expressly states that 

‘‘the Department is working on [a more] 

comprehensive approach in its 

redrafting of the implementing 

regulation for the MLA.’’ 47 The 

Department is committed to an open 

and transparent process as its work 

continues on any potential amendment 

to its regulation, and, as stated above, 

invites comment on all aspects of this 

proposal, particularly data regarding the 

nature, scope, and prevalence of credit 

products offered or extended to Service 

members and their families. 

The majority of Service members have 

access to reasonably priced (as well as 

low-cost) credit, and, as long as they 

wisely use those resources, they are 

likely not to need high-cost loans to 

fulfill their credit needs. In the event 

that a Service member overwhelms his 

or her credit, or has not established 

credit for an emergency, the Department 

and the Relief Societies are prepared to 

assist that person in order that he or she 

might resolve the immediate difficulties 

and continue to manage his or her 

income and expenses to a point where 

he or she can develop a sound financial 

basis. In circumstances where Service 

members have taken high-cost loans 

because no other alternatives appeared 

to be available, Department counselors 

and the Relief Societies have found that 

the existing high-cost debt makes 

intervention more difficult; these 

service providers would rather have had 

the opportunity to have helped resolve 

issues sooner. 

III. Key Aspects of the Department’s 

Proposal 

A. Proposal To Amend the Scope of 

‘‘Consumer Credit’’ 

The Department proposes to revise 

the scope of the definition of ‘‘consumer 


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48See 72 FR at 50582 (observing that ‘‘[t]he 

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 roll over the loan instead of repaying 

it can create a cycle of debt for financially 

overburdened Service members and their 

families.’’). 

49 72 FR at 50584. 

50 72 FR at 50585. In this context, the Department 

drew attention to its ‘‘ability’’ to issue additional 

rules. There can be no doubt, especially in light of 

section 661(b) of the 2013 Act, that the Department 

has the authority to amend the regulation 

implementing the protections of the MLA. 10 U.S.C. 

987(h)(3) (requiring the Department, at a minimum, 

to consult with other Federal agencies ‘‘not less 

often than once every two years’’ with a view 

towards revising the regulation implementing the 

MLA). 

51 72 FR at 50585. 

52See 72 FR at 50585 (‘‘The Department 

maintains the ability to issue additional rules in the 

future and the Department plans to continue 

surveying Service members and will obtain a 

variety of inputs from regulatory agencies, 

consumer protection groups and the credit industry 

to assess the level of protection provided by the 

final rule.’’). 

53See, e.g., April 2014 Report, at 2. 

54April 2014 Report, app. A. 

55 78 FR 36134 (June 17, 2013). 

56 Id. 

57California Attorney General, et al., DOD–2013– 

OS–0133–0002. References herein to the comments 

note the name of the commenter and the docket 

number of the submission, available at http://

www.regulations.gov. 

58See, e.g., American Bankers Assoc. et al., DOD– 

2013–OS–0133–0022. 

59Texas Appleseed, DOD–2013–OS–0133–0016, 

at 1–2; see also State of Colorado, DOD–2013–OS– 

0133–0034, at 1 (explaining how lenders can 

circumvent the Military Lending Act by ‘‘offering 

92 day loans, loans for $2001, or by structuring the 

loans as open-end credit’’); but see Credit Union 

National Association and Defense Credit Union 

Council, DOD–2013–OS–0133–0032, at 2 (arguing 

that the current rule has been an ‘‘effective tool’’ 

and that the 91-day limit for payday loans should 

not be changed). 

60Texas Appleseed, DOD–2013–OS–0133–0016, 

at 2. 

61 Id. at 3. 

credit’’ to cover a broader range of 

closed-end and open-end credit 

products, to be generally consistent with 

the credit products that for decades 

have been subject to the requirements of 

the Bureau’s Regulation Z. When 

adopting its initial regulation in 2007, 

the Department focused on three 

narrowly defined types of products that 

the Department believed, at that time, 

most directly acted as sources of the 

‘‘debt trap’’ for Service members and 

their families.48 In addition, the 

Department expressed its concern about 

the ‘‘potential for unintended 

consequences that could adversely 

affect credit availability if it were to 

adopt a broadly applicable 

regulation.’’ 49 At the same time, the 

Department was careful to avoid 

engendering any reliance interests in the 

narrow scope of its initial rule, and, in 

this regard, expressly stated that ‘‘[t]he 

Department maintains the ability to 

issue additional rules in the future .. . . 

’’ 50 When the Department adopted its 

initial regulation, financial-institution 

creditors, Service members, and others 

who have an interest in the 

administration of the MLA were 

appropriately cautioned that the 

Department had committed itself to 

review various sources of data, 

including ‘‘input from regulatory 

agencies, consumer protection groups 

and the credit industry to assess the 

level of protection provided by the final 

rule,’’ in order to determine whether 

‘‘further revisions [to its regulation] are 

needed.’’ 51

The Department continues to believe 

that certain payday loans, vehicle title 

loans, and refund anticipation loans 

present the most severe risks to Service 

members and their families, and 

remains mindful that more broadly 

defining the ‘‘consumer credit’’ that 

would be subject to 10 U.S.C. 987 may 

present unintended consequences, 

including a reduction in ‘‘credit 

availability.’’ At the same time, 

however, the Department recognizes— 

particularly in light of its experiences 

administering the existing regulation— 

that a broader range of closed-end and 

open-end credit products carry high 

costs, many of which far exceed the 

interest-rate limit established in 10 

U.S.C. 987(b), and thereby pose the risks 

to Service members and their families 

that the Department has long sought to 

significantly reduce or eliminate. 

Consistent with the Department’s 

stated policy to monitor market 

developments that affect Service 

members, since adopting its initial 

regulation in 2007 the Department 

informally has gathered information 

from regulatory agencies, consumer 

protection groups, and participants in 

the credit industry to assess whether, 

and in which respects, the Department 

should consider revising its regulation 

implementing the MLA.52 As described 

above in section II.E., information was 

submitted for the April 2014 Report 

issued in response to the House Report. 

In this regard, the April 2014 Report 

describes various sources of 

information, including results from a 

DMDC QuickCompass survey 53 and a 

questionnaire the Department 

distributed to financial counselors and 

legal assistance attorneys, which mostly 

requested narrative responses.54

More importantly, and directly to 

support the Department’s rulemaking 

process, in June 2013 the Department 

published an advance notice of 

proposed rulemaking (‘‘ANPR’’) 

soliciting comment on several issues 

relating to its existing regulation.55 In 

particular, the Department asked 

whether there is a need to revise the 

regulation, ‘‘with special attention to the 

scope of the definition of ‘consumer 

credit.’ ’’ 56

1. The Department’s June 2013 ANPR 

The Department received 37 

comments in response to the ANPR. 

Most of the comments were submitted 

by state agencies, including state 

attorneys general,57 and consumer 

protection groups. Several participants 

in the credit industry submitted 

comments,58 as did several individuals. 

In addition, comments were submitted 

relating to whether the Department 

should consider revising its regulation 

in order to address rent-to-own 

transactions. 

Generally, commenters responding to 

the ANPR urge the Department to take 

one of three actions relating to the 

definition of consumer credit: (1) leave 

untouched the current definition as 

three enumerated products, as well as 

the particular definition for each of 

those products; (2) extend the definition 

by covering certain additional products, 

such as overdraft services, rent-to-own 

transactions, and/or all payday loans; or 

(3) extend the definition by 

incorporating the definition of 

consumer credit in the Bureau’s 

Regulation Z. Other commenters raise 

general concerns regarding the narrow 

scope of the existing definition of 

consumer credit and urge the 

Department to adopt a more 

comprehensive definition, but have not 

recommended a particular definition. 

One commenter states that the 

Department’s current rule has 

‘‘significant gaps and loopholes, which 

lenders exploit to target military 

borrowers with high interest loans well 

above the MLA’s [36 percent] rate cap,’’ 

and is ‘‘particularly concerned with [a] 

multiple-payment or installment loan[ ]’’ 

that is not covered by the rule, because 

the loan has a term of over 91 days or 

exceeds $2,000.59 This commenter 

states, more specifically, that ‘‘[i]n 

Texas, high cost multiple-payment loans 

with rates often exceeding [600 percent] 

APR are increasingly offered by payday 

lenders.’’ 60 In support of its claims 

regarding the effects of the loopholes in 

the Department’s current rule, this 

commenter describes its ‘‘[s]tore visits’’ 

in Killeen, Texas, in July 2013, where 

the commenter found companies that 

had changed their loan products to offer 

‘‘high-cost multiple-payment products 

to [Service] members,’’ 61 and cited as an 

example particular loan products 


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62 Id. at 3–4. 

63State of Colorado, DOD–2013–OS–0133–0034, 

at 1; see also California Attorney General, et al., 

DOD–2013–OS–0133–0002, at 2 (‘‘[T]he narrow 

categories and definitions create large loopholes 

that permit lenders to fashion abusive or predatory 

transactions that avoid the MLA’s protections.’’); 

but see Missouri Credit Union Association, DOD– 

2013–OS–0133–0801, at 1 (arguing that the rule’s 

objective has been accomplished ‘‘primarily by 

limiting the impact of the rule to those creditors 

that offer certain loans which are closed-end 

credit’’). 

64State of Colorado, DOD–2013–OS–0133–0034, 

at 1. 

65 Id. 

66 Id. at 2. 

67 Id. 

68 Id. 

69 Id. 

70California Attorney General, et al., DOD–2013– 

OS–0133–0002, at 2; see also, Members of the U.S. 

Senate, DOD–2013–OS–0133–0036, at 1 (arguing 

that gaps in the rules ‘‘have been taken advantage 

of by certain lenders’’ who offer ‘‘predatory loan 

products at exorbitant triple digit effective interest 

rates and loan products that do not include the 

additional protections envisioned by the law’’). 

71California Attorney General, et al., DOD–2013– 

OS–0133–0002, at 2. 

72 Id.; but see Ohio Credit Union League, DOD– 

2013–OS–0133–0027, at 2 (arguing that the current 

rule is effective and that the Department should 

protect Service members by ‘‘reviewing and 

identifying those lending practices that are or can 

be predatory or abusive on a case by case basis’’). 

73Members of the U.S. House of Representatives, 

DOD–2013–OS–0133–0035, at 1. 

74 Id. 

75 Id. at 1–2. See also Washington Department of 

Veterans Affairs, DOD–2013–OS–0133–0004, at 2 

(requesting that the Department ‘‘modify the 

definition of consumer credit to ensure that service 

members are protected from all forms of high-cost 

credit, regardless of the duration or structure of the 

loan’’); but see American Bankers Assoc., et al., 

DOD–2013–OS–0133–0022, at 1 (arguing that the 

Military Lending Act is working as intended and 

that ‘‘[i]mposing additional requirements on 

lending to servicemembers would have adverse 

consequences for members of the armed forces and 

military families.’’). 

76Members of the U.S. Senate, DOD–2013–OS– 

0133–0036, at 1; see also Texas Appleseed, DOD– 

2013–OS–0133–0016, at 1 (stating that the current 

rule has ‘‘significant gaps and loopholes’’); but see 

American Bankers Assoc., et al., DOD–2013–0133– 

0022, at 4 (‘‘The rule adopted in 2007 was 

structured carefully and struck the proper balance 

between protecting servicemembers and their 

families while still ensuring they had access to 

beneficial products and services.’’). 

77Members of the U.S. Senate, DOD–2013–OS– 

0133–0036, at 1. 

78 Id. at 1–2. 

79 Id. at 2. 

80 Id. 

81American Bankers Assoc. et al., DOD–2013– 

OS–0133–0022, at 1; see also Missouri Credit Union 

Association, DOD–2013–OS–0133–0026, at 1 

(‘‘[T]he rule’s objective has been accomplished 

primarily by limiting the impact of the rule to those 

creditors that offer certain loans which are closedend credit in the form of payday loans, vehicle title 

loans, and tax refund anticipation loans.’’); but see 

State of Colorado, DOD–2013–OS–0133–0034, at 1 

(arguing that ‘‘lenders have easily circumvented the 

purpose and protections intended by MLA’’). 

82American Bankers Assoc. et al., DOD–2013– 

OS–0133–0022, at 1, at 4–5. 

offered by a national payday lender with 

two locations in Killeen.62

Another commenter states that under 

the Department’s current rule, ‘‘lenders 

have easily circumvented the purpose 

and protections intended by the 

MLA.’’ 63 For example, the commenter 

describes the ‘‘structure of [the] payday 

loan law’’ 64 in Colorado, which requires 

‘‘a minimum loan term of six 

months.’’ 65 Because of the extended 

duration of the loan, ‘‘the MLA rate cap 

of 36 percent does not apply,’’ 66

allowing lenders ‘‘to make loans to 

service members with an approximate 

200 percent annual percentage rate.’’ 67

The commenter urges the Department to 

revise the rule so that it does not 

‘‘contain limits that lenders may use to 

avoid regulation.’’ 68 Specifically, the 

commenter recommends that the 

Department incorporate the definition of 

consumer credit under TILA, ‘‘so that 

regardless of the consumer credit 

transaction amount, structure, or 

duration, it is subject to MLA’s 36 

percent cap on interest rates.’’ 69

Similarly, another commenter states 

that the Department’s current rule has 

‘‘large loopholes that permit lenders to 

fashion abusive or predatory 

transactions that avoid the MLA’s 

protections.’’ 70 The commenter, more 

specifically, states that lenders can 

evade protections under the current rule 

‘‘by requiring that payday loans be a 

minimum of $2,001, or have a minimum 

period of 92 days’’ or by offering ‘‘[a]ny 

open-ended or revolving payday loan; 

[a]ny auto title loan for more than 181 

days; [a]ny bank loan that is secured by 

funds on deposit, such as overdraft 

loans; and [a]ny retail sales credit loan 

or other similar rent-to-own 

transaction.’’ 71 ‘‘[T]o protect military 

borrowers from predatory lenders who 

purposefully structure loan transactions 

so as to avoid the strictures of the 

MLA,’’ the commenter urges the 

Department to make the MLA 

protections ‘‘apply uniformly to the full 

range of consumer credit loans that 

present dangers similar to those already 

covered, including rent-to-own 

transactions and overdraft loans.’’ 72

One commenter notes that 

‘‘inappropriate loans and exorbitant 

interest payments force many members 

of the military and their families to 

forgo other necessities, such as housing 

or grocery bills.’’ 73 Financial strain 

‘‘negatively affects [service member] 

morale and puts their ability to do their 

job . . . at risk.’’ 74 The commenter 

raises a concern about the ‘‘narrow 

definition of consumer credit’’ and 

urges the Department to ‘‘modify the 

definition of consumer credit to ensure 

that Service Members in all states are 

protected from all forms of high-cost 

credit.’’ 75

One commenter expresses concern 

that ‘‘the rules initially promulgated by 

the Department contained gaps in the 

definition of consumer credit.’’ 76 These 

gaps ‘‘have been taken advantage of by 

certain lenders’’ to offer ‘‘predatory loan 

products at exorbitant triple digit 

effective interest rates and loan products 

that do not include the additional 

protections envisioned by the law.’’ 77

The commenter notes that ‘‘the 

Department was given the authority and 

has inherent flexibility provided under 

the law’’ to revise the rule to establish 

a more ‘‘expansive’’ definition of 

consumer credit to which the 

protections in the law would apply.78

The commenter urges the Department to 

include within the scope of the rule 

‘‘payday and vehicle title loans of any 

duration, whether open or closedended,’’ ‘‘tax refund anticipation loans 

of any duration,’’ as well as to ‘‘consider 

extending the 36 [percent] APR cap to 

unsecured installment loans targeted at 

the military and all other forms of 

consumer credit.’’ 79 The commenter 

states that ‘‘[s]ervice members and their 

families deserve the strongest possible 

protections and swift action to ensure 

that all forms of credit offered to 

members of our armed forces are safe 

and sound.’’ 80

A group of industry commenters 

states the Department’s current rule ‘‘is 

working as intended to protect members 

of the armed forces and their 

dependents.’’ 81 These commenters 

argue that the current rule strikes the 

correct balance between access to credit 

and protecting consumers from 

predatory lending practices. They point 

to several aspects of the MLA that, in 

their view, would prevent creditors 

from offering products to Service 

members if the current rule’s definition 

is expanded to encompass other 

products. Specific concerns under the 

MLA include: Harsh penalties for noncompliance; duplicative and confusing 

disclosure requirements; oral disclosure 

requirements that are inconvenient for 

various technologies; inability to 

refinance or reprice debt; ban on 

arbitration clauses common to many 

loan contracts; and difficulties 

identifying all covered borrowers.82 The 

same commenters specifically request 

that the rule continue to incorporate 

definitions provided under the TILA 

because ‘‘[a]dding separate and 

disparate definitions undermines the 

ability of consumers to understand 

credit products and should be avoided. 


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83 Id. at 11. 

84 Idaho Division of Veterans Services, DOD– 

2013–OS–0133–0038, at 2; see also State of 

Colorado, DOD–2013–OS–0133–0034, at 2 (‘‘[T]he 

definition of consumer credit should be as broad as 

possible and should not contain limits that lenders 

may use to avoid regulation.’’); but see American 

Bankers Assoc. et al., DOD–2013–OS–0133–0022, at 

3 (noting that Service members also benefit from 

many other consumer protections that are not 

occupation-specific). 

85 Id. at 1 (citing Eric Elbogen, Sally Johnson, 

Ryan Wagner, Virginia Newton, and Jean Beckham, 

‘‘Financial Well-Being and Postdeployment 

Adjustment Among Iraq and Afghanistan War 

Veterans,’’ Military Medicine 177 (June 2012). 

86 Idaho Division of Veterans Services, DOD– 

2013–OS–0133–0038, at 2. 

87 Id. 

88Michael S. Archer, DOD–2013–OS–0133–0007, 

at 3; see also State of Colorado, DOD–2013–OS– 

0133–0034, at 1 (stating that lenders are easily able 

to circumvent the current rule’s ‘‘purpose and 

protections’’). 

89Michael S. Archer, DOD–2013–OS–0133–0007, 

at 4. With regard to rent-to-own transactions, the 

commenter states that the Department should 

specifically prohibit sellers from tracking 

consumers’ activity on computers and other 

electronics. The commenter states that the 

Department should prohibit contact with 

commanding officers and other third parties in the 

debt collection context unless the service member 

has given written consent after default. But see 

Rent-A-Center, DOD–2013–OS–0133–0010 (arguing 

that rent-to-own transactions should not be defined 

as consumer credit due to the nature of those 

transactions and legislative and regulatory history). 

90Association of Progressive Rental 

Organizations, DOD–2013–OS–0133–0012, at 1; see 

also Aaron’s, Inc., DOD–2013–OS–0133–0028, at 2 

(‘‘[A]ny attempt to include the [rent-to-own] 

transaction] under [the] definition of consumer 

credit would not be consistent with federal and 

state laws.’’); but see Shriver Center, DOD–2013– 

OS–0133–0009, at 2 (‘‘[R]ent-to-own transactions 

are consumer credit sales and should be protected 

as consumer credit under the MLA.’’). 

91Association of Progressive Rental 

Organizations, DOD–2013–OS–0133–0012, at 2. See 

also Aaron’s, Inc., DOD–2013–OS–0133–0028. In 

this regard, the Department is cognizant of the 

consumer protection issues that may arise during 

rent-to-own transactions. However, consistent with 

the Department’s determination when adopting the 

initial regulation in 2007, 72 FR at 50582, rent-toown products usually are not considered credit for 

purposes of TILA. Accordingly, rent-to-own 

transactions typically would not be ‘‘consumer 

credit,’’ as that term is proposed in § 232.3(e). 

92Association of Progressive Rental 

Organizations, DOD–2013–OS–0133–0012, at 2. 

93 Id. 

94 Id. at 1–2. 

95Missouri Credit Union Association, DOD– 

2013–OS–0133–0026, at 1; see also Michigan Credit 

Union League & Affiliates, DOD–2013–OS–0133– 

0021, at 1 (‘‘Because of credit unions’ unique 

structure and the products and services offered to 

assist Service members, the MCUL does not believe 

revisions to the rules as they relate to credit unions 

are necessary or desirable at this time.’’). 

96Ohio Credit Union League, DOD–2013–OS– 

0133–0027, at 2; but see Woodstock Institute, DOD– 

2013–OS–0133–0025, at 2 (‘‘In order to beset 

protect all service members, the Department of 

Defense should eliminate its narrow product 

definitions and apply the 36 percent Military APR 

limit, and additional protections, to all consumer 

credit products covered by the Truth in Lending 

Act.’’). 

97Ohio Credit Union League, DOD–2013–OS– 

0133–0027, at 2. 

98American Financial Service Association, DOD– 

2013–OS–0133–0020 at 2 (citing Jean Ann Fox, The 

Military Lending Act Five Years Later: Impact On 

Servicemembers, the High-Cost Small Dollar Loan 

Market, and the Campaign against Predatory 

Lending, Consumer Federation of America, (May 

29, 2012)). 

99 Id. at 2; see also National Installment Lenders 

Association, DOD–2013–OS–0133–0014, at 1 

(arguing that the Department of Defense should 

instruct Base commanders to ‘‘place off limits to 

service members any business they find 

objectionable or predatory’’ instead of amending the 

rule to cover installment lending); but see Shriver 

Center, DOD–2013–OS–0133–0009, at 2 (arguing 

that installment loans can ‘‘have many of the same 

harmful features the MLA prohibits such as high 

interest rates, automatic access to a bank account, 

payment by military allotment, and repeated 

refinances with no benefit to the consumer’’). 

It would be a step backwards to 

disconnect the MLA and TILA.’’ 83

One commenter expressed concern 

that the current rule ‘‘includes 

limitations which reduce the [MLA’s] 

effectiveness.’’ 84 This commenter states 

that ‘‘[a]pproximately one out of every 

ten veterans reported having more than 

$40,000 in unsecured debt. For many 

veterans, some of this debt is acquired 

while on active duty, often from highcost lenders that frequently target 

military bases.’’ 85 The commenter states 

that in at least eleven states, the current 

rule ‘‘does not apply to all forms of 

payday lending permitted under state 

law, and in at least thirteen the rule 

does not apply to all forms of vehicle 

title lending.’’ 86 The commenter 

requests that the Department align 

consumer credit under the rule with the 

definition of consumer credit under 

TILA. The commenter states that ‘‘[t]his 

inclusive definition will ensure that all 

service members are covered by the 

consumer protections envisioned by 

Congress in 2007 and protect veterans 

from the long-term effects of predatory 

lending as they return to civilian life.’’ 87

One commenter states that the 

Department should ‘‘not lose sight of [a] 

payday lender’s demonstrated capacity 

for creative evasion.’’ 88 In particular, 

the commenter states that he has seen 

lenders disguise closed-end transactions 

as open-end, thereby evading 

requirements of the MLA. The 

commenter states that some lenders 

disguise short-term loans as check 

cashing services and others disguise 

loans and loan fees using the sale of 

phone cards or other ‘‘trinkets’’ at 

inflated prices combined with the 

delayed presentment of checks. The 

commenter also states that rent-to-own 

transactions should be included as 

consumer credit under the Department’s 

regulation because ‘‘[i]f evaluated as 

interest, these extra costs amount to 

extraordinarily high interest, far in 

excess of that authorized by the 

MLA.’’ 89 The commenter also states 

that the rule should prohibit 

unreasonable choice-of-venue 

provisions in a loan contract, 

specifically pointing to one creditor 

who requires all lawsuits be brought in 

Virginia while all the parties and 

transactions at issue are typically 

located in North Carolina. Finally, the 

commenter states that the Department 

should amend the rule to cover all 

payday, rent-to-own, installment, and 

vehicle title loans without respect to the 

duration of the loan. 

One commenter states that the 

Department correctly ‘‘left [rent-to-own] 

out’’ of the current rule.90 In support of 

its assertion that the Department 

properly did not include rent-to-own 

transactions within the scope of the 

current rule, the commenter states that 

‘‘the [rent-to-own] business model is not 

extending credit and is, instead, a 

personal property leasing model.’’ 91 To 

support this point, the commenter 

describes a typical rent-to-own 

transaction where the consumer ‘‘[does] 

not assume any debt’’ 92 and instead 

enters into ‘‘weekly, bi-weekly, semimonthly, or monthly rental agreements 

for consumer durables.’’ 93 The 

commenter further notes that because 

rent-to-own transactions are not 

included in the current rule, ‘‘there was 

no reason for the industry to modify its 

practices to escape coverage.’’ 94

One commenter states ‘‘there is no 

need at this time to revise the rule as it 

relates to credit unions.’’ 95 Another 

commenter states that the Department 

should review and identify ‘‘those 

lending practices that are or can be 

predatory or abusive on a case by case 

basis.’’ 96 This commenter states that a 

‘‘one issue approach could have 

negative unintended consequences for 

credit unions and other lenders that 

adhere to fair and equitable lending 

practices’’ and that such an approach 

could limit access to beneficial credit 

for Service members.97

One commenter requesting that the 

current rule should not be changed 

states that of over 40,000 complaints in 

the Better Business Bureau’s complaint 

database in 2011, only 37 were filed 

against online military installment 

lenders.98 The commenter states that 

installment lending should not be 

covered by the regulation because it 

‘‘provides access to affordable, 

repayable consumer credit’’ and is ‘‘the 

safest form of small-dollar lending’’ 

because it is self-amortizing and thereby 

protects borrowers from becoming 

trapped in a cycle of debt.99


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58610 Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 

100See 12 CFR 1026.1(c)(1)(iii) (limiting the 

coverage of the regulation, in relevant part, to credit 

that is subject to a finance charge or is payable by 

a written agreement in more than four installments). 

101See 10 U.S.C. 987(i)(3) (broadly defining 

‘‘interest’’). 

102See 10 U.S.C. 987(h)(2) (granting discretion to 

the Department to prescribe rules regarding ‘‘[t]he 

method for calculating the applicable annual 

percentage rate of interest on [consumer credit] 

obligations’’). 

103See 72 FR at 50585 (‘‘The intent of the statute 

is clearly to restrict or limit credit practices that 

have a negative impact on Service members without 

impeding the availability of credit that is benign or 

beneficial to Service members and their families.’’). 

2. Proposal To Amend the Scope of 

‘‘Consumer Credit’’ 

As several commenters state and as 

the Department itself has observed, a 

creditor currently may lawfully provide 

a wide range of closed-end and openend credit products to a Service member 

that carry inordinately high costs, and 

many of these credit products can be 

offered without meaningfully applying 

underwriting measures that consider the 

borrower’s ability to repay or with 

unrealistic payment schedules— 

precisely the types of risks to Service 

members that the Department 

consistently has aimed to diminish. 

The Department believes that the 

narrowly defined parameters of the 

credit products regulated as ‘‘consumer 

credit’’ under the existing regulation do 

not effectively provide the protections 

intended to be afforded to Service 

members and their families under the 

MLA. Accordingly, the Department 

proposes to amend the regulation, in 

§ 232.3(e), so that, in general, consumer 

credit would be defined consistently 

with certain credit that long has been 

subject to the protections under TILA, 

namely: Credit offered or extended to a 

covered borrower primarily for 

personal, family, or household 

purposes, and that is (i) subject to a 

finance charge or (ii) payable by a 

written agreement in more than four 

installments.100

The Department proposes 

amendments so that, in general, its rule 

may rely on the provisions and 

jurisprudence of the Bureau’s 

Regulation Z because that regulation 

substantially regulates the central 

components of the framework of the 

MLA, particularly the types of charges 

that should be included as ‘‘interest’’ 101

and the methods for calculating the 

annual percentage rate of interest for 

consumer credit.102 The Department 

believes that, even as consumer credit 

may be revised to apply to a broad range 

of credit products, aligning the key 

aspects of the framework under the 

MLA with the terms and standards that 

have been developed under Regulation 

Z will greatly facilitate a creditor’s 

ability to comply with the Department’s 

regulation. More specifically, the 

Department proposes, in §§ 232.3(l) and 

232.4(c), that any charge that is a 

‘‘finance charge’’ under Regulation Z, as 

well as certain other charges that would 

be covered as ‘‘interest’’ under 10 U.S.C. 

987(i)(3), must be included in the 

calculation of the MAPR (as applicable 

to the transaction), and would be subject 

to the interest-rate limit under 10 U.S.C. 

987(b). 

QUESTION 1: The Department 

solicits comment on whether an 

approach should be taken that would 

define ‘‘consumer credit’’ consistently 

with certain credit regulated under 

TILA, and invites suggestions on 

alternative approaches. 

QUESTION 2: If the Department were 

to adopt a regulation as proposed, to 

what extent, and in what manner, 

would the Department’s regulation 

affect the availability of consumer credit 

to Service members and their 

dependents or have other 

consequences? 

QUESTION 3: If the Department were 

to adopt a regulation as proposed, to 

what extent would a creditor, as a 

practical matter, need to develop 

separate classes of credit products, 

namely, one class of products for 

covered borrowers and other classes for 

other consumers? 

QUESTION 4: If the Department 

continues to pursue an approach that 

defines ‘‘consumer credit’’ to be 

generally consistent with certain credit 

regulated under TILA, should the 

Department consider a limited or 

complete exemption for an insured 

depository institution or insured credit 

union? What legitimate basis could 

there be for any exemption for an 

insured depository institution or 

insured credit union from the 

requirements of the MLA, particularly if 

under this approach other financial 

institutions would be subject to the 

Department’s regulation? What other 

protections relating to credit products 

already are afforded to—or could be 

improved for—Service members and 

their dependents? 

QUESTION 5: If the Department 

continues to pursue an approach that 

defines ‘‘consumer credit’’ to be 

generally consistent with certain credit 

regulated under TILA, should the 

Department consider including one or 

more exemptions for certain types of 

credit products, such as student loans? 

What legitimate basis could there be for 

any particular exemptions for certain 

credit products? 

QUESTION 6: Apart from the 

conditional exclusion proposed for a 

credit card account that charges bona 

fide fees, as discussed below, should the 

Department consider providing one or 

more exceptions from the charges that 

must be included in the MAPR for de 

minimis bona fide fees associated with 

an open-end credit line? If so, should 

that type of exception be limited to an 

open-end line of credit connected to a 

deposit account? If so, please 

specifically describe which fees on 

these accounts would be bona fide fees 

eligible for such an exception. What 

would be the appropriate cost limit of 

a de minimis fee? If the Department 

does provide for such an exception to 

open-end credit (other than for credit 

card accounts), what parameters should 

the Department use to limit the 

exception to prevent evasion of the 

protections under the MLA? 

B. Proposed Conditional Exclusion for 

Credit Card Accounts 

Even though the Department believes 

that the consumer credit regulated 

under the MLA generally should track 

the scope of credit regulated under 

Regulation Z, the Department recognizes 

that imposing the interest-rate limit of 

10 U.S.C. 987(b) on credit card products 

likely would result in dramatic changes 

to the terms, conditions, and availability 

of those products to Service members 

and their families. The important 

protections Congress intends to provide 

to Service members and their families 

under the MLA should be made relevant 

to a broader range of credit products 

without unduly impeding the 

availability of credit that is benign or 

beneficial to Service members and their 

families.103 Unlike the vast majority of 

credit products that are amenable to 

straightforward pricing mechanisms 

relating to the cost of the funds 

borrowed (such as solely on the basis of 

a fixed or variable interest rate applied 

for a term or on a periodic basis), credit 

provided through a credit card account 

can be provided subject to pricing 

mechanisms that, in part, account for 

the value of products or services 

delivered through the cardholder’s use 

of the card itself. In this regard, many 

creditors offer credit card products that, 

from a consumer’s perspective, 

generally are subject to periodic 

interest-rate charges (i.e., the cost of the 

funds borrowed), plus participation fees 

and transaction-based fees that may 

vary, depending on the consumer’s use 

of the card. 

The Department believes that most 

creditors impose bona fide fees 

expressly tied to specific products or 

services connected to using the credit 

card itself and segregable from the cost 


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Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 58611 

104 In this regard, the Department notes that 

approximately 68 percent of American families 

have at least one credit card. See Federal Reserve 

Board’s Survey of Consumer Finances (2010), 

available at http://www.federalreserve.gov/pubs/

bulletin/2012/pdf/scf12.pdf p. 67. 

105 15 U.S.C. 1665d; 12 CFR 1026.52. 

106 15 U.S.C. 1637(n)(1); 12 CFR 1026.52(a). 

107The Department maintains that 10 U.S.C. 

987(i)(6) grants broad latitude to the Department to 

‘‘define which types of consumer credit 

transactions shall be covered by the law, provided 

that they do not include the two listed 

exemptions.’’ 72 FR at 50585. Furthermore, 10 

U.S.C. 987(h) grants to the Department discretion to 

‘‘prescribe regulations to carry out [the MLA],’’ and, 

in particular, to prescribe rules relating to ‘‘[t]he 

method for calculating the applicable annual 

percentage rate of interest’’ and the ‘‘types of fees’’ 

that are subject to the restrictions of the MLA. 10 

U.S.C. 987(h)(2)(B) and (h)(2)(C). 

of funds borrowed, such as a foreign 

transaction fee that applies only when 

the cardholder tenders the card for a 

purchase made outside of the United 

States. Even though some of these fees 

might appear to be relatively high under 

certain circumstances, the Department 

believes that credit card products 

represent a form of consumer credit 

that, in general, is beneficial to Service 

members,104 especially insofar as the 

costs of bona fide fees expressly tied to 

specific products or services may be 

imposed only upon the Service 

member’s own choices regarding the use 

of the card. If the interest-rate limit of 

10 U.S.C. 987(b) were to be flatly 

imposed on credit card products, then 

creditors likely would be required to 

significantly re-structure their current 

products, services, and pricing 

mechanisms when providing credit 

cards to Service members and their 

families—without a corresponding 

benefit to the Service members and their 

families. Flatly applying the interestrate limit of 10 U.S.C. 987(b) to credit 

card products could result in unusually 

adverse consequences to both creditors 

and Service members, especially insofar 

as some creditors might elect to stop 

offering these products altogether or 

suspend certain functions of the card 

(i.e., use of a card to make purchases in 

a foreign country) to Service members. 

The Department also believes that 

credit card products may warrant 

special consideration under the MLA 

because comparable protections for 

consumers who use these products 

separately apply under the Credit Card 

Accountability Responsibility and 

Disclosure Act of 2009 (‘‘CARD Act’’). 

For example, the CARD Act, as 

implemented by the Bureau’s 

Regulation Z, limits penalty fees on 

credit cards, including late-payment and 

over-the-limit fees, to those fees that are 

‘‘reasonable and proportional’’ to the 

omission or violation that triggered the 

fee.105 Regulation Z provides safe harbor 

fee ranges designed to facilitate 

compliance with these requirements of 

the CARD Act. The CARD Act also 

limits the total amount of fees that may 

be charged on an account in its first 

year: In general, a creditor may not 

impose fees for a credit card account 

during the first year that exceed 25 

percent of the available line of credit in 

effect when the account is opened.106

In an effort to balance the interests of 

limiting credit practices that have an 

adverse impact on Service members 

without unduly impeding the 

availability of credit that is benign or 

beneficial to Service members and their 

families, the Department has considered 

proposing a complete exemption from 

the definition of ‘‘consumer credit’’ for 

credit extended to a covered borrower 

under a credit card account. However, 

the Department believes that certain 

creditors could take advantage of an 

opportunity to exploit a complete 

exemption for credit cards by 

transforming high-cost, open-end credit 

products (which otherwise would be 

covered as ‘‘consumer credit’’) into 

credit card products. 

The Department similarly has 

considered whether exclusions from the 

MAPR for certain types of fees, such as 

an application fee or participation fee, 

should be proposed for credit card 

accounts in order to preserve current 

levels of access to those products for 

Service members and their dependents; 

however, the Department believes that 

unqualified exclusions from the MAPR 

for certain fees, or all non-periodic fees, 

likewise could be exploited by a 

creditor who would be allowed to 

preserve a high-cost, open-end credit 

product by offering a relatively lower 

periodic rate coupled with a high 

application fee, participation fee, or 

other fee (as described in the exclusion), 

subject to the restrictions under the 

CARD Act. 

To avoid creating clear regulatory 

gaps in the framework for 10 U.S.C. 987, 

the Department believes that consumer 

credit under the MLA should include 

credit extended to a covered borrower 

under a credit card account under an 

open-end (not home-secured) consumer 

credit plan, except that this form of 

consumer credit may be subject to a 

qualified exclusion for bona fide 

application fees, participation fees, 

transaction-based fees, and similar fees 

connected to the use of the credit 

card.107 Proposed § 232.4(d) would 

allow a creditor to exclude from the 

MAPR a bona fide fee—other than a 

periodic rate—only to the extent that the 

charge by the creditor is (i) a bona fide 

fee and (ii) reasonable and customary 

for that type of fee. Proposed 

§ 232.4(d)(2) would clarify that certain 

charges—namely, ‘‘any credit insurance 

premium, including charges for single 

premium credit insurance, fees for debt 

cancellation or debt suspension 

agreements, or to any fees for creditrelated ancillary products sold in 

connection with and either at or before 

consummation of the credit transaction 

or upon account opening’’—may not be 

excluded as bona fide fees because these 

charges are expressly included in the 

definition of ‘‘interest’’ in 10 U.S.C. 

987(i)(3). 

Proposed Standards for Exclusion for 

Bona Fide Fees 

The Department believes that the 

proposed conditions for excluding a 

bona fide fee from the MAPR—namely, 

that the fee must be ‘‘reasonable’’ and 

‘‘customary’’—would fairly allow 

Service members and their families to 

continue to have access to credit card 

products and limit the opportunity for 

a creditor to exploit the exclusion for 

those products. Unlike a complete or 

targeted exemption for credit card 

products, the proposed conditional 

exclusion would not allow a creditor to 

transform high-cost, open-end credit 

products into credit card accounts by 

offering a relatively lower periodic rate 

coupled with a high application fee, 

participation fee, or other fee. Under the 

proposal, a creditor who imposes an 

unreasonable (in any respect) fee or a 

fee that is not, in every respect, 

customary (such as in the manner of the 

charge or the basis for the computation) 

in a credit card account for a Service 

member must include the total amount 

of the fees—including any fee(s) that 

otherwise may be eligible for the 

exclusion—in the MAPR. The 

‘‘reasonable and customary’’ conditions 

for a bona fide fee, as proposed, are 

intended to be applied flexibly so that, 

in general, creditors may continue to 

offer a wide range of credit card 

products that carry reasonable costs 

expressly tied to specific products or 

services and which vary depending 

upon the Service member’s own choices 

regarding the use of the card. 

Proposed §§ 232.4(d)(3)(i)–(v) would 

provide standards to guide 

determinations regarding whether a 

bona fide fee—other than a periodic 

rate—for a credit card account may be 

excluded from the calculation of the 

MAPR as ‘‘reasonable and customary.’’ 

Like-kind fees. Proposed 

§ 232.4(d)(3)(i) would provide that the 

bona fide fee must be compared to ‘‘fees 

typically imposed by other creditors for 

the same or a substantially similar 


tkelley on DSK3SPTVN1PROD with PROPOSALS6
58612 Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 

108The Department is aware of at least 16 

creditors who hold loans above the proposed asset 

threshold. See The Nilson Report, Issue 1,025 (Sept. 

2013) at 10 (listing 14 MasterCard and Visa issuers 

with above $3 billion in outstanding loans mid-year 

2013); Discover Bank, Consolidated Reports on 

Condition and Income for A Bank with Domestic 

Offices Only—FFEIC 041 (July 30, 2013) at 17 

(indicating that Discover held more than $49 billion 

in such loans); and American Express Company, 

Consolidated Statements of Income (July 17, 2013) 

at 13 (indicating that American Express held $54.6 

billion in cardmember loans. These 16 creditors 

(who are not the only creditors above the $3 billion 

threshold) hold over $582 billion in credit card 

loans or greater than 87 percent of the market in 

2013. 

109 In this regard, 10 U.S.C. 987(h)(3) requires the 

Department, at a minimum, to consult with other 

Federal agencies ‘‘not less often than once every 

two years’’ with a view towards revising the 

regulation implementing the MLA. 

110See, e.g., the solicitations available at 

https://creditcards.chase.com. 

111The SEC makes public filings available 

through its Electronic Data Gathering, Analysis, and 

Retrieval (EDGAR) system. Information on this 

system is available at http://www.sec.gov/edgar/

aboutedgar.htm. 

112Call Reports for institutions insured by the 

Federal Deposit Insurance Corporation can be found 

on the Federal Financial Institutions Examination 

Council’s Web site, available at https://cdr.ffiec.gov/ 

public/. Call Reports for credit unions are available 

online through the National Credit Union 

Administration’s Web site, available at http://

researchcu.ncua.gov/Views/FindCreditUnions.aspx. 

product or service.’’ The Department 

believes that this elementary like-kind 

standard would be appropriate because 

a creditor should not be required to 

assess a fee for, say, a balance-transfer 

service based on the fees that other 

creditors charge for cash-advance 

services. 

Safe harbor. Proposed § 232.4(d)(3)(ii) 

is designed to provide a firm, yet 

flexibly adaptable standard for a 

‘‘reasonable’’ amount of a bona fide fee. 

Under this provision, a creditor may 

compare the amount of the bona fide fee 

to ‘‘an average amount for a 

substantially similar fee charged by 5 or 

more creditors each with at least $3 

billion in outstanding loans on U.S. 

credit card accounts at any time during 

the 3-year period preceding the time 

such average is computed.’’ The 

Department believes that the standard 

for a ‘‘reasonable’’ amount of a bona fide 

fee should be sufficiently flexible to 

allow for changing conditions in the 

marketplace for products and services 

provided through credit card accounts, 

and thus proposes language in the 

provision (‘‘an average’’ of an amount 

charged by ‘‘5 or more creditors’’) that 

would allow a creditor to select any 

group of 5 or more credit card issuers 

who each have the qualifying amount of 

outstanding credit card loans in order to 

make a determination. The Department 

believes that using a pool of 5 or more 

of these qualifying creditors is 

reasonable because these creditors, 

taken together, would represent a 

significant portion of the market for 

credit card products.108

In order for a creditor to use the fee(s) 

charged by a credit card issuer when 

computing an average, the credit card 

issuer must have had the qualifying 

amount of loans at any time during the 

3-year period preceding the date when 

the creditor computes the average. If the 

amount of the creditor’s own bona fide 

fee is less than or equal to the average 

of the amount charged by those 5 or 

more credit card issuers who each have 

the qualifying amount of outstanding 

credit card loans, then the creditor’s 

bona fide fee would be reasonable for 

the purposes of the exclusion. 

Proposed § 232.4(d)(3)(ii) would set a 

threshold of $3 billion in outstanding 

credit card loans on U.S. credit card 

accounts held by a credit card issuer in 

order for that issuer’s fees to be eligible 

for inclusion in an average calculated 

for the purposes of compliance with the 

‘‘reasonable’’ condition of § 232.4(d)(1). 

The Department proposes the use of a 

minimum of 5 credit card issuers, each 

of whom meet the threshold of $3 

billion in outstanding credit card loans 

on U.S. credit card accounts, in order to 

facilitate a creditor’s ability to compute 

an average under the safe-harbor 

provision in light of a very manageable, 

yet fairly representative, sample of fees 

in the marketplace for credit card 

products. The Department believes a 

threshold of $3 billion of outstanding 

credit card loans is reasonable because 

that threshold would include a 

significant number of credit card 

issuers, whose credit card products 

make up the majority of the products in 

the current credit card market. 

Moreover, the credit card issuers who 

hold more than $3 billion in 

outstanding credit card loans on U.S. 

credit card accounts offer credit card 

products that are typical in that 

marketplace. The Department is aware 

that many credit card issuers who hold 

less than $3 billion in outstanding credit 

card loans on U.S. credit card accounts 

may offer credit card products with 

lower or similar fees (relative to issuers 

who hold more than $3 billion in 

outstanding credit card loans); these 

issuers would benefit in a 

straightforward manner from the 

proposed method of computing an 

average for the purposes of the safeharbor proposed in § 232.4(d)(3)(ii). The 

Department believes that establishing 

this threshold would prevent a niche 

issuer charging unreasonable credit card 

fees from benefiting from the safe 

harbor, in a manner that evades the 

intent of the rule, by comparing its fees 

only to the fees of other niche issuers, 

rather than a more representative 

sample of the marketplace. 

The Department also proposes a 

rolling 3-year look-back period to 

facilitate a creditor’s ability to establish 

that a credit card issuer meets the assetsize standard. This 3-year period should 

facilitate the process for calculating, and 

relying on, an average amount for one or 

more relevant fees because, for example, 

when a creditor uses information from 

the past year to establish that a credit 

card issuer meets the asset-size 

threshold, the creditor could rely on the 

fee information relating to that credit 

card issuer’s credit card products for the 

next two years. At the same time, the 

proposed 3-year period could provide 

stability to the safe-harbor 

determination, particularly if credit card 

loan holdings of credit card issuers shift 

significantly in response to market 

conditions or otherwise. Furthermore, a 

3-year period could provide adequate 

time for the Department to amend the 

proposed threshold or safe harbor, as 

may be necessary.109

The Department believes that all 

creditors who offer credit card products 

to Service members and their 

dependents could readily calculate 

whether each type of fee associated with 

those products may fit within the safe 

harbor because data relating to the fees 

imposed by other credit card issuers, as 

well as the amount of credit card loans 

outstanding, is widely available. With 

regard to credit card fees, most credit 

card issuers, particularly all of the 

largest issuers, make complete contract 

terms on their current offerings freely 

available on their Web sites as part of 

solicitations and applications for their 

products.110 With regard to the amount 

of outstanding credit card loans held by 

a credit card issuer, issuers provide this 

information in both filings to the 

Securities and Exchange Commission 

(SEC filings) and Consolidated Reports 

of Condition and Income (Call Reports). 

Both SEC filings 111 and Call Reports 112

are available online without charge. In 

addition, the Department recognizes 

that data collected from these and other 

information sources is compiled in 

commercially available databases 

regularly used by financial institutions 

to track the marketplace for credit card 

products and services, and the 

Department believes that creditors 

should be permitted to reasonably rely 

upon those industry-specific databases 

when computing an average fee under 

proposed § 232.4(d)(3)(ii). 

For example, a creditor seeking to 

determine whether another credit card 

issuer could qualify as one of the 5 


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Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 58613 

113For the sake of simplicity, only two fees are 

considered in this example. Under proposed 

§ 232.4(d)(1), each bona fide fee must be 

‘‘reasonable and customary,’’ and accordingly, a 

creditor seeking to determine whether all of its bona 

fide fees fit within the safe harbor under proposed 

§ 232.4(d)(3)(ii) must conduct a separate analysis for 

each fee. Similarly, the example uses bank cards 

only for the sake of simplicity. The proposed 

regulation does not distinguish among types of 

credit cards (e.g., private label, bank, or retail store 

cards) or types of creditors. 

creditors for determining the average fee 

under proposed § 232.4(d)(3)(ii) could 

download a recent Call Report for an 

issuer and review Schedule RC–C Part 

I line 6(a) that provides credit card 

‘‘[l]oans to individuals for household, 

family, and other personal 

expenditures’’ held by the institution. If 

that credit card issuer indicated that it 

held more than $3 billion in outstanding 

credit card loans, then the creditor 

could include any fee charged by that 

credit card issuer in the creditor’s safeharbor calculation under proposed 

§ 232.4(d)(3)(ii). The creditor could find 

the amounts of the relevant fees for that 

credit card issuer disclosed on the 

issuer’s current offerings, as available 

through a variety of sources, such as the 

issuer’s Web site. 

The following example is provided for 

additional guidance on how a creditor 

could determine whether its own fees 

for a credit card account would fit 

within the safe harbor under proposed 

§ 232.4(d)(3)(ii). Creditor Bank regularly 

offers a credit card product called the 

‘‘Creditor Bank Card.’’ The Creditor 

Bank Card carries an annual fee of $25, 

a cash advance fee of 3 percent of a 

transaction or $5, whichever is greater, 

and no other fees.113 Creditor Bank is 

aware of 5 large credit card issuers: 

Bank A, Bank B, Bank C, Bank D, and 

Bank E. Creditor Bank consults the SEC 

filings for each of these 5 banks and 

finds that all 5 held U.S. credit card 

loans in excess of $3 billion at some 

time in the preceding year. Next, 

Creditor Bank reviews the fees charged 

on various credit card products issued 

by those 5 banks. Bank A charges an 

annual fee of $100 on one credit card 

product and a $0 annual fee on another 

credit card product. Bank A charges a 

cash advance fee of 4 percent of a 

transaction or $10, whichever is greater, 

on both of its card products. Bank B 

charges a $50 annual fee on one credit 

card product and a $0 annual fee on 

another credit card product. Bank B 

charges a cash advance fee of 2 percent 

of the transaction or $5, whichever is 

greater, on both its credit card products. 

Bank C, Bank D, and Bank E each offers 

one credit card product that carries a 

$50 annual fee, and a cash advance fee 

of 3 percent of the transaction or $5, 

whichever is greater. 

Under proposed § 232.4(d)(3)(ii), 

Creditor Bank may choose to calculate 

an average using the highest annual fees 

charged by each of these other 5 banks. 

In this case, Creditor Bank could 

calculate an average fee for the annual 

participation fee of $60 (the sum of $100 

for Bank A, plus $50 for each of Bank 

B, Bank C, Bank D, and Bank E; divided 

by 5). Because the Creditor Bank Card’s 

$25 annual fee falls below the $60 

average of fees charged by 5 other banks, 

Creditor Bank would meet the safe 

harbor for that fee. Creditor Bank could 

then undertake the same analysis for 

cash advance fees, and would be 

required to consider whether its fee is 

‘‘reasonable’’ under the safe harbor with 

respect to both the percentage charged 

and the minimum fee. In this case, 

Creditor Bank could calculate an 

average cash advance percentage fee of 

3 percent and an average cash advance 

minimum fee of $6. Because the 

Creditor Bank Card’s percentage fee and 

minimum fee fall below these averages, 

Creditor Bank may exclude these bona 

fide fees from the MAPR under 

proposed § 232.4(d)(3)(ii). We seek 

comment on the feasibility of 

performing this calculation and the 

associated costs. 

Reasonable fee. Proposed 

§ 232.4(d)(3)(iii) is designed to clarify 

that a bona fide fee still may be 

‘‘reasonable’’ for the purposes of the 

exclusion even if that fee is higher than 

an average amount as calculated under 

proposed § 232.4(d)(3)(ii). In particular, 

the Department recognizes that, due to 

several factors in the marketplace for 

credit cards, the prices of certain fees 

could drop from current levels, 

including to zero, and yet the 

Department believes that a creditor who 

charges a reasonable fee still should be 

permitted to avail itself of the exclusion 

in paragraph (d)(1) of this section. 

Accordingly, the Department proposes a 

provision that expressly states that ‘‘[a] 

bona fide fee charged by a creditor is not 

unreasonable solely because other 

creditors do not charge a fee for the 

same or a substantially similar product 

or service.’’ 

Customary. Proposed § 232.4(d)(3)(iv) 

would provide a standard to assess 

whether a bona fide fee is ‘‘customary’’ 

for the purposes of the exclusion. The 

touchstone for assessing whether a 

creditor’s bona fide fee is ‘‘customary’’ 

is whether ‘‘other creditors typically 

compute, or customarily have 

computed,’’ that fee in the manner by 

which that creditor does so. 

Nevertheless, the condition that a bona 

fide fee be ‘‘customary’’ for that type of 

fee should not be interpreted so as to 

require creditors to move in lockstep in 

order to satisfy this condition. The 

Department intends the standard for a 

‘‘customary’’ condition to be applied 

with sufficient flexibility that a creditor 

who imposes a bona fide fee in a given 

manner, such as a fixed amount per 

transaction, may continue to do so, 

‘‘even if substantially all other creditors 

compute that fee on a percentage basis.’’ 

Reasonableness for a participation 

fee. Consistent with the Department’s 

proposal that the conditions of 

‘‘reasonable and customary’’ be applied 

flexibly, proposed § 232.4(d)(3)(v) 

would provide a standard in the 

particular case of a participation fee. 

The Department recognizes that 

creditors who issue credit cards provide 

a range of benefits and services to 

Service members and their dependents 

who are cardholders, and some cards 

may charge a participation fee in lieu of 

(or in light of lower) transaction-based 

fees. For example, a creditor may offer 

a credit card that carries a relatively 

higher participation fee, yet does not 

charge a foreign transaction fee. 

Accordingly, proposed § 232.4(d)(3)(v) 

would provide a standard stating that 

‘‘[a]n amount of a bona fide fee for 

participation in a credit card account 

may be reasonable and customary . . . 

if that amount reasonably and 

customarily corresponds to the credit 

limit in effect or credit made available 

when the fee is imposed, to the services 

offered under the credit card account, or 

to other factors relating to the credit 

card account.’’ 

QUESTION 7: If the Department 

continues to pursue an approach that 

defines ‘‘consumer credit’’ to be 

generally consistent with certain credit 

regulated under TILA, should the 

Department consider including an 

exemption specifically for a credit card 

account under an open-end (not homesecured) consumer credit plan? Would 

the consumer protection under TILA be 

sufficient to be consistent with the 

requirements of MLA? How would an 

exemption for consumer credit offered 

through a credit card account be 

articulated? 

QUESTION 8: The Department 

solicits comment on potential 

operational issues with applying the 

regulation under the MLA to credit card 

products offered in retail sales locations, 

particularly at the point of sale. How 

should the Department address any 

such potential issues in a final rule that 

may cover some or all credit card 

products extended to covered 

borrowers? 

QUESTION 9: Do the proposed 

standards appropriately describe 


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114 72 FR at 50588. 

115 32 CFR 232.5(a)(1)–(2). However, the 

Department also issued an important ‘‘caveat’’ to 

this provision, stating that a creditor may not fit 

within the safe harbor if the ‘‘creditor obtains 

documentation as part of the credit transaction 

reflecting that the applicant is a covered borrower’’ 

(notwithstanding the signed declaration). 72 FR at 

50588. 

116 In this regard, the Department notes that even 

under the elective verification method, an activated 

member of the National Guard or Reserves is 

required to provide a copy of the military orders 

calling the covered member to military service, 

upon request of the creditor. 32 CFR 232.5(b). 117 72 FR at 50588. 

whether a bona fide fee may be 

excluded from the calculation of the 

MAPR as ‘‘reasonable and customary?’’ 

If not, please specifically describe the 

language the Department should use to 

clarify when a bona fide fee is not 

required to be included in the MAPR. 

QUESTION 10: Does the threshold of 

$3 billion in outstanding credit card 

loans on U.S. credit card accounts 

appropriately allow an assessment of 

whether a bona fide fee is ‘‘reasonable,’’ 

in light of the fees charged by credit 

card issuers whose credit card products 

are typical in the marketplace? If not, 

what measure(s) should be used to 

facilitate a creditor’s own assessment of 

its bona fide fees, for the purposes of 

complying with conditions proposed in 

§ 232.4(d)(1), while also preventing 

other creditors who offer credit card 

products that carry unreasonable fees 

from benefitting from the safe harbor? Is 

a pool of 5 or more creditors reasonably 

large for computing an average fee for 

the purposes of § 232.4(d)(1)? Does a 

period of 3 years provide sufficient 

stability for measuring whether a credit 

card issuer meets the asset-size 

standard? If not, what period should be 

used? 

C. Proposal To Revise Provisions 

Governing Assessment of a Covered 

Borrower 

When adopting its initial regulation in 

2007, the Department explained that the 

provisions governing the assessment of 

a ‘‘covered borrower’’ should balance 

protections for a covered borrower 

while also addressing a creditor’s need 

to have ‘‘some degree of certainty in 

determining that the loans [the creditor 

makes] are in compliance with [the 

MLA] as implemented by Part 232.’’ 114

The Department’s existing regulation 

seeks to balance these interests by 

providing a ‘‘safe harbor’’ from the 

requirements of the regulation for a 

creditor who, with respect to a 

consumer credit transaction: first, 

provides a consumer a prescribed form, 

the ‘‘covered borrower identification 

statement,’’ declaring whether he or she 

is a covered borrower, and the consumer 

signs the form indicating that he or she 

is not a covered borrower; and, second, 

has not determined, using certain 

optional verification procedures, that 

the consumer is a covered borrower.115

The Department is proposing to revise 

these provisions governing the 

assessment of a covered borrower for 

two reasons. 

First, the Department has become 

aware of misuses of the covered 

borrower identification statement 

whereby a Service member (or covered 

dependent) falsely declares that he or 

she is not a covered borrower. The 

Department is concerned that a Service 

member seeking a credit product that is 

subject to the MLA falsely states—either 

on his or her own initiative or complicit 

with the creditor in the course of the 

application process—that he or she is 

not a covered borrower so that the 

institution offers the credit product 

unencumbered by the interest-rate limit 

and other restrictions of the MLA. While 

the Department intended the provision 

of the covered borrower identification 

statement to afford protections for 

Service members and their dependents, 

in actual transactions the dynamic 

between creditors and individual 

borrowers has led to widespread 

misuses of the statement, often resulting 

in extensions of credit that violate the 

MLA—plus, adverse effects on Service 

members or their dependents who make 

false statements. Furthermore, and 

benignly, some spouses of active duty 

Service members may not understand 

that they are ‘‘dependents’’ covered 

under the MLA and might unwittingly 

incorrectly complete the covered 

borrower identification statement. 

Accordingly, the Department believes 

that this section of the regulation should 

be revised to relieve a Service member 

or his or her dependent from making 

any statement regarding his or her status 

as a covered borrower 116 in the course 

of a transaction involving consumer 

credit. 

Second, the Department believes that 

the current framework of providing the 

covered borrower identification 

statement—which allows the consumer 

to state either that ‘‘I AM’’ or ‘‘I AM 

NOT’’ a covered borrower—could be 

unduly cumbersome for some creditors 

to administer. In particular, the 

Department is concerned that, in light of 

the proposal to cover a broader range of 

products as consumer credit under the 

MLA, a creditor should be afforded a 

more straightforward mechanism to 

have ‘‘some degree of certainty in 

determining that the loans [the creditor 

makes] are in compliance with [the 

MLA] as implemented by Part 232.’’ 117

The Department believes that a coveredborrower check could be conducted 

unilaterally by a creditor by checking 

the Department’s database, akin to the 

unilateral process a creditor currently 

uses to obtain a consumer report when 

assessing the creditworthiness of a 

consumer and to ascertain the 

consumer’s identity. Accordingly, the 

Department proposes to revise this 

section of the regulation in order to 

provide a clearer mechanism for a 

creditor to obtain the protection of a safe 

harbor when assessing whether a 

consumer is a covered borrower. 

The Department currently provides an 

online database, available at https://

www.dmdc.osd.mil/appj/mla/index.jsp, 

that allows a creditor to determine 

whether a consumer is a covered 

borrower under the MLA (the MLA 

Database). Proposed § 232.5 would 

provide a conclusive mechanism for a 

creditor to unilaterally assess the status 

of a consumer who applies for consumer 

credit if: first, the creditor checks the 

MLA Database to determine that 

consumer-applicant’s status when the 

creditor enters into a transaction or 

establishes an account for consumer 

credit; second, the consumer-applicant 

does (or does not) appear in the MLA 

Database; and, third, the creditor retains 

a record of the information obtained 

from the MLA Database. 

The Department anticipates that 

commercial information-services 

providers, such as consumer reporting 

agencies, may choose to supply 

information products to financial 

institutions that would include coveredborrower checks as part of those 

products used to process loan 

applications. As the Department may 

determine to be appropriate, the 

structure, as well as the terms and 

conditions for use, of the MLA Database 

could be developed to permit a 

commercial information-services 

provider to access the MLA Database for 

the purposes of obtaining and reselling 

a search record regarding a consumer. 

Contemplating that such developments 

could be made, if appropriate, nothing 

in proposed § 232.5 would prohibit or 

otherwise restrict a creditor from using 

a commercially provided information 

product to conduct a covered-borrower 

check, so long as the MLA Database is 

the underlying source of the data relied 

on by that creditor. 

QUESTION 11: If the Department 

makes appropriate adjustments to the 

MLA Database, should the Department 

modify the language of § 232.5 to clarify 

that a creditor may take advantage of the 


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118See 32 CFR 232.3(c) (defining a ‘‘covered 

borrower’’). 

safe harbor by conducting a coveredborrower check using a commercially 

provided information product whose 

underlying data is derived from the 

MLA Database? If so, please specifically 

describe the language the Department 

should use to clarify this aspect of 

§ 232.5. 

If the vast majority of transactions are 

amenable to covered-borrower checks 

conducted solely through information 

obtained from the MLA Database, the 

actual status of the consumer as a 

covered borrower could be material to a 

consumer credit transaction or account 

if the creditor has actual knowledge of 

that consumer’s status. Consistent with 

the policy underlying the caveat to the 

existing § 232.5(a), the Department 

believes that a creditor who has actual 

knowledge that a consumer is a covered 

borrower should not be entitled to the 

safe harbor when entering into a 

transaction or establishing an account 

for consumer credit for that borrower. 

For example, if as part of the creditor’s 

application or underwriting process, the 

creditor collects from a covered 

borrower a copy of the borrower’s 

current military identification card or 

other record of the borrower’s status, the 

creditor would obtain actual knowledge 

of that borrower’s status, regardless of 

whether the creditor checks the MLA 

Database. Proposed § 232.5(c) reflects 

this policy and provides that the 

creditor must ‘‘treat the consumer as a 

covered borrower notwithstanding any 

determination by that creditor based on 

information obtained from the [MLA 

Database].’’ The Department intends for 

this exception to the safe harbor in 

proposed § 232.5(b) to apply so that a 

creditor may not take advantage of an 

obvious error in the MLA Database 

when the creditor knows otherwise, and 

the Department expects these 

circumstances to be rare. 

If a creditor conducts a coveredborrower check in reliance on 

information obtained (including, 

potentially, indirectly) from the MLA 

Database, and determines at the outset 

that a consumer-applicant is not a 

covered borrower, proposed 

§ 232.5(b)(2) generally would provide a 

safe harbor from liability under the 

MLA in the event that the consumer, in 

fact, is a covered borrower. This 

situation could occur, for example, in 

the case that a consumer married to an 

active duty service member (and, 

therefore who is a covered borrower 

himself or herself) has not registered for 

any military benefits in the Defense 

Enrollment Eligibility Reporting System 

which provides the underlying data for 

the MLA Database. The Department 

believes a creditor who checks a 

consumer against the MLA Database has 

undertaken the best efforts under the 

circumstances to comply with the MLA 

and should receive, therefore, protection 

from liability if the database had 

contained incorrect information about 

that consumer. Moreover, a creditor 

who satisfies the conditions for the safe 

harbor provided under proposed 

§ 232.5(b)(2) would be free from liability 

under the MLA at the outset of 

establishing an account for credit—and 

throughout the lifespan of that 

particular account—relating to that 

consumer. 

The Department believes the 

consumer protections of the MLA will 

be most effectively provided if creditors 

extending consumer credit with an 

MAPR exceeding the 36 percent 

interest-rate limit check the MLA 

Database before extending that credit to 

consumers. In order to benefit from the 

safe-harbor provision under proposed 

§ 232.5(b), a creditor must check the 

MLA Database whenever a consumer 

applies for a new consumer credit 

product or establishes a new account for 

consumer credit, including a new line of 

consumer credit that might be 

associated with a pre-existing 

transactional account held by the 

borrower. For example, if a consumer 

initially opens a checking account with 

a bank, and then, later, applies for an 

overdraft line of credit associated with 

that checking account and which carries 

a cost in excess of the interest-rate limit, 

in order to receive the benefit of the safe 

harbor for purposes of that new line of 

consumer credit, the bank must check 

the MLA Database when the consumer 

applies for the overdraft line of credit, 

even if the bank previously had checked 

the MLA Database at the time he or she 

established the checking account and 

did not find the consumer in the 

database. 

QUESTION 12: If the Department 

were to adopt a framework for a creditor 

to conduct a covered-borrower check as 

proposed in § 232.5, should the 

Department also adopt an exception 

from the safe harbor that addresses the 

situation when the creditor has actual 

knowledge that a consumer is a covered 

borrower? What are the likely costs 

associated with conducting coveredborrower checks as proposed in § 232.5? 

What alternatives should the 

Department consider for creditors to 

conduct covered-borrower checks? 

Should the Department consider 

alternative safe harbor provisions for 

certain types of creditors or certain 

types of consumer credit, such as credit 

extended at retail sales locations? Please 

provide specific language for provisions 

that would implement these 

alternatives. 

QUESTION 13: Should the 

Department retain a safe harbor for use 

of the covered borrower identification 

statement? The Department solicits 

comment on whether the use of the 

statement would be unduly 

cumbersome if the Department expands 

coverage of the regulation to additional 

types of credit products? 

QUESTION 14: Should the 

Department provide a fallback provision 

to protect a creditor from liability in the 

case that the creditor is temporarily or 

permanently unable to access the 

internet at the time of conducting a 

transaction or establishing an account 

for consumer credit? Should the 

Department provide protection from 

liability from the MLA in the case that 

a creditor can demonstrate that the MLA 

Database was not operational at the time 

the creditor attempted to search the 

database? If so, should the Department 

address how the creditor may establish 

that the MLA Database was not 

operational at the time the creditor 

attempted the search? 

IV. Section-by-Section Description of 

the Proposed Regulation 

Section 232.1 Authority, purpose, and 

coverage 

The Department proposes minor 

revisions to this section, mainly for the 

sake of clarity and consistency with 

provisions of the regulation. 

Section 232.2 Applicability 

The Department proposes to amend 

this section in two respects. 

First, in the new proposed subsection 

(a), the Department would add a 

provision stating: ‘‘Nothing in this part 

applies to a credit transaction or 

account relating to a consumer who is 

not a covered borrower at the time he 

or she becomes obligated on a credit 

transaction or establishes an account for 

credit.’’ This proposed provision is 

designed to clarify the Department’s 

longstanding policy that the 

requirements under 10 U.S.C. 987, as 

implemented in the regulation, apply 

only to a consumer who is a covered 

borrower ‘‘at the time he or she becomes 

obligated on a consumer credit 

transaction covered by this part.’’ 118

The Department believes that defining 

the scope of the regulation to apply only 

to a covered borrower when he or she 

enters into a transaction or establishes 

an account for consumer credit is 

consistent with the language and 


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58616 Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 

119See, e.g., 10 U.S.C. 987(a) (imposing 

conditions on ‘‘[a] creditor who extends consumer 

credit’’); 10 U.S.C. 987(c) (requiring certain 

information to be provided to a covered borrower 

‘‘before the issuance of credit’’); 10 U.S.C. 987(e) 

(declaring that ‘‘[i]t shall be unlawful for any 

creditor to extend consumer credit to a [covered 

borrower]’’ that involves certain restrictions or 

conduct) (emphases added). 

120 10 U.S.C. 987(f)(3) (‘‘Any credit agreement, 

promissory note, or other contract prohibited under 

this section is void from the inception of such 

contract.’’). 

121See 12 CFR 1026.4(c)(3) (imposing certain 

conditions on a charge for overdraft services that, 

if not satisfied, would make that charge a ‘‘finance 

charge’’). 

122See 12 CFR 1026.4(c)(3). 

123See 12 CFR 1026.29, regarding state 

application for Bureau exemption of a class of 

transactions within the state. 

124 32 CFR 232.3(b)(2)(iv). In addition, the 

Department now believes that this provision 

represents a drafting error because, upon closer 

review, the Department could not locate a reference 

in the Internal Revenue Code to a ‘‘qualified 

retirement account,’’ as described in this provision. 

structure of 10 U.S.C. 987.119 In this 

regard, the Department believes that 10 

U.S.C. 987 should not be interpreted so 

as to impose restrictions on an existing 

agreement between a creditor and a 

consumer involving a credit transaction 

primarily for personal, family, or 

household purposes that spring to life 

when the consumer becomes a covered 

borrower when he or she begins active 

duty service in the military. Interpreting 

10 U.S.C. 987 as applying only to a 

covered borrower who holds that status 

when he or she agrees to obtain the 

consumer credit is fair to the creditor 

who, at the outset of the transaction, 

should be in a position to know the 

status of its counterparty to the 

agreement. Moreover, the Department’s 

longstanding policy regarding this 

aspect of the scope of 10 U.S.C. 987 is 

consistent with the provision set forth 

in § 987(f)(3),120 which makes any credit 

contract that is prohibited under 10 

U.S.C. 987 ‘‘void from the inception of 

such contract.’’ Section § 987(f)(3) 

would operate unjustly if a consumer, 

upon obtaining the status of a covered 

borrower, could sue the creditor to void 

an existing credit contract on the 

grounds that the contract—which may 

have been entirely lawful when 

originally entered into with the 

consumer—violates one or more 

provisions of 10 U.S.C. 987. One 

practical consequence of the 

Department’s longstanding policy is that 

a creditor is not required to constantly 

monitor the status of each consumer 

who has obtained credit or holds an 

account for credit to assess whether the 

consumer is a ‘‘covered borrower;’’ 

rather, the creditor may conduct that 

assessment, as the creditor may so elect, 

only at the outset of the transaction or 

when establishing the account for 

consumer credit. The Department 

proposes to adopt corresponding 

revisions to the language of certain other 

provisions of the regulation, notably 

§§ 232.3(f) and 232.5(b)(2), for the sake 

of clarity and consistency with this 

policy. 

Second, the Department proposes to 

add a new subsection (b) stating: ‘‘The 

examples in this part are not exclusive. 

To the extent that an example in this 

part implicates a term or provision of 

Regulation Z (12 CFR part 1026), issued 

by the Consumer Financial Protection 

Bureau to implement the Truth in 

Lending Act, Regulation Z shall control 

the meaning of that term or provision.’’ 

Section 232.3 Definitions 

(a) Affiliate. The Department proposes 

a definition of ‘‘affiliate’’ to accompany 

the definition of ‘‘creditor.’’ This new 

proposed definition is designed to 

prevent evasion of the rule, specifically 

with respect to an entity that would not, 

when considered alone, qualify as a 

creditor, but, when considered together 

with its affiliates, would be engaged in 

extending credit, as described in 

§ 232.3(i)(3) of the proposed rule. 

(b) Billing cycle. The Department 

proposes to define the term consistent 

with the meaning of this term in 

Regulation Z. 

(c) Bureau. The Department proposes 

to define the term for the Consumer 

Financial Protection Bureau. 

(d) Closed-end credit. The Department 

proposes to define the term consistent 

with the meaning of this term in 

Regulation Z. 

(e) Consumer. The Department 

proposes to define this term as a natural 

person. 

(f) Consumer credit. As discussed 

above, the Department proposes to 

define ‘‘consumer credit’’ consistent 

with the relevant provisions of the 

Bureau’s Regulation Z. Proposed 

§ 232.3(f)(2) would provide exceptions 

to ‘‘consumer credit’’ that, in general, 

track the exceptions in 10 U.S.C. 

987(i)(6). 

Certain credit products may, or may 

not, be covered under the Department’s 

proposed definition of ‘‘consumer 

credit,’’ depending, for example, on 

whether the particular credit product is 

subject to a ‘‘finance charge,’’ which the 

Department likewise proposes to define 

consistent with the meaning of that term 

in Regulation Z. Most, if not all, 

‘‘deposit advance’’ products would 

(when offered to a covered borrower) be 

covered as consumer credit because this 

type of product typically involves credit 

extended by a creditor primarily for 

personal, family, or household purposes 

for which the borrower pays any fee or 

charge that is, or is expected to be, 

repaid from funds available in the 

borrower’s asset account held by that 

creditor. Likewise, consistent with 

Regulation Z,121 an overdraft line of 

credit with a finance charge would 

(when offered to a covered borrower) be 

covered as consumer credit to the extent 

that product consists of credit extended 

by a creditor primarily for personal, 

family, or household purposes to pay an 

item that overdraws an asset account 

and for which the borrower pays any fee 

or charge, but only if (A) the extension 

of credit for such an item and (B) the 

imposition of the fee or charge were 

previously agreed upon in writing. On 

the other hand, an overdraft service 

typically would not be covered as 

consumer credit because Regulation Z 

excludes from ‘‘finance charge’’ any 

charge imposed by a creditor for credit 

extended to pay an item that overdraws 

an asset account and for which the 

borrower pays any fee or charge, unless 

the payment of such an item and the 

imposition of the fee or charge were 

previously agreed upon in writing.122

Consistent with the Department’s 

existing regulation, proposed 

§ 232.3(f)(2)(iv) would exclude from the 

scope of ‘‘consumer credit’’ any credit 

transaction that is an exempt transaction 

for the purposes of Regulation Z (other 

than a transaction exempt under 12 CFR 

1026.29) 123 or otherwise is not subject 

to disclosure requirements under 

Regulation Z. The Department believes, 

at this time, that the exclusions in 

proposed § 232.3(f)(2)(iv) are 

appropriate limitations to the consumer 

credit that is subject to 10 U.S.C. 987 

because these types of exempted credit 

do not pose risks to Service members 

and their dependents, and a creditor 

who already complies with Regulation Z 

should not be required to independently 

assess whether certain types of credit 

exempt under that rule could be subject 

to the requirements of the MLA. 

In this regard, this section of the 

proposed rule would remove the 

provision in the Department’s existing 

regulation that provides an exclusion for 

‘‘credit secured by a qualified retirement 

account as defined in the Internal 

Revenue Code.’’ 124 The Department 

believes that the intent of this exclusion 

is sufficiently captured by the exception 

for any credit transaction that is an 

exempt transaction for the purposes of 

Regulation Z, as described in proposed 

§ 232.4(c)(1)(iv). Under § 1026.3(g) of 

Regulation Z, credit extended to a 

participant in certain retirement plans is 


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125 32 CFR 232.3(d). 

126 10 U.S.C. 987(i)(5)(A)(i). 

127 32 CFR 232.3(e) (‘‘Creditor means a person 

who . . . and who otherwise meets the definition 

of ‘creditor’ for purposes of Regulation Z.’’). 

128 32 CFR 232.3(f). 

129Currently the term ‘‘electronic fund transfer’’ 

is defined in section 1005.3(b) of the Bureau’s 

Regulation E. 12 CFR 1005.3(f). 

130 32 CFR 232.3(e) (defining ‘‘person’’ for the 

purposes of § 232.3 as including a ‘‘natural person, 

organization, corporation, partnership, 

proprietorship, association, cooperation, estate, 

[and] trust.’’ 

131 32 CFR 232.3(i). 

132 In the case of a national bank, for example, see 

12 U.S.C. 85; 12 CFR 74001. 

133 32 CFR 232.3(h)(1)(ii)–(iii). 

134 32 CFR 232.3(h)(1)(iii). 

not subject to the requirements of 

Regulation Z. 

(g) Covered borrower. The Department 

proposes to revise the definition of 

‘‘covered borrower’’ to provide greater 

clarity and more closely reflect the 

language of the MLA. Consistent with 

the plain language of 10 U.S.C. 987(i)(1), 

the proposed rule would refer to the 

‘‘armed forces.’’ This proposed 

provision also would clarify that the 

protections provided to members of the 

armed forces on active duty apply to 

Service members called or ordered to 

active duty under titles 10 or 14 of the 

United States Code, or Service members 

on active Guard and Reserve duty under 

title 32. Additionally, the Department 

proposes to revise the definition of 

‘‘dependent’’ to reflect the plain 

language of the statute, as amended by 

§ 663 of the 2013 Act. The Department 

believes that the proposed definition of 

‘‘dependent,’’ consistent with the term 

used to establish eligibility for military 

medical care, would appropriately carry 

out the intent to simplify the process for 

determining which family members are 

covered under 10 U.S.C. 987. 

QUESTION 15: Does the revised 

definition of covered borrower 

appropriately cover active duty Service 

members and their dependents? 

(h) Credit. The proposed definition of 

‘‘credit’’ is not changed from the 

Department’s existing regulation.125

(i) Creditor. The Department proposes 

to define ‘‘creditor’’ to more closely 

track the language in the definition of 

the term in 10 U.S.C. 987(i)(5). In 

addition, in paragraph (i)(3), the 

Department proposes to interpret the 

statutory provision of ‘‘engaged in the 

business of extending consumer 

credit’’ 126 consistent with the 

corresponding provision of the 

Department’s existing regulation, which 

refers to the definition of ‘‘creditor’’ in 

Regulation Z.127

(j) Department. The Department 

proposes to define the term for the 

Department of Defense. 

(k) Dwelling. The proposed definition 

of ‘‘dwelling’’ is not changed from the 

Department’s existing regulation.128

(l) Electronic fund transfer. The 

Department proposes to amend the 

definition of ‘‘electronic fund transfer’’ 

to have the same meaning as in the 

regulation issued by the Bureau to 

implement the Electronic Fund Transfer 

Act (‘‘EFTA’’), as amended from time to 

time (12 CFR part 1005).129 In the 

context of this provision—which relates 

only to an exception that would be 

contained in proposed § 232.8(e)—the 

Department believes that there is no 

need to account for the authority of the 

Board of Governors of the Federal 

Reserve System under EFTA. 

(m) Finance charge. The Department 

proposes to define the term consistent 

with the meaning of this term in 

Regulation Z. 

(n) Military annual percentage rate 

(MAPR). The Department proposes to 

define the term as the cost of credit 

expressed as an annual rate, and 

requires the MAPR to be calculated in 

accordance with proposed § 232.4(c). 

(o) Open-end credit. The Department 

proposes to define the term consistent 

with the meaning of this term in 

Regulation Z. 

(p) Person. The Department proposes 

to define the term consistent with the 

definition of ‘‘person’’ in the 

Department’s existing regulation.130

(q) Regulation Z. The Department 

proposes to define the term consistent 

with the definition of ‘‘Regulation Z’’ in 

the Department’s existing regulation,131

except that, first, the Department would 

delete the phrase ‘‘or contract’’ and, 

second, the Department would include 

a provision relating to the authority of 

the Board of Governors of the Federal 

Reserve System under TILA. 

Section 232.4 Terms of Consumer 

Credit Extended to Covered Borrowers 

Proposed § 232.4(a) is intended to 

track the restrictions under 10 U.S.C. 

987(a). Relative to the language of this 

provision in the Department’s existing 

rule, which describes a ‘‘creditor’’ and 

an ‘‘assignee,’’ the Department is 

proposing to modify this provision to 

track the language of the statute and 

proposed § 232.3(i)(2), which includes 

an ‘‘assignee’’ within the definition of 

creditor. 

Proposed § 232.4(a)(2) would track the 

restriction under 10 U.S.C. 987(a)(2), 

which provides that a creditor who 

extends consumer credit to a covered 

borrower shall not require the borrower 

to ‘‘pay interest with respect to the 

extension of such credit, except as . . . 

authorized by applicable State or 

Federal law.’’ The Department 

understands that this condition on an 

extension of consumer credit possibly 

could be interpreted to restrict a 

financial institution, such as a national 

bank, based in one state from charging 

interest to covered borrowers residing in 

another state, which imposes a limit on 

the interest rate that may be charged, 

‘‘except as . . . authorized by [that 

other] State.’’ The Department believes 

nothing in 10 U.S.C. 987 or this 

regulation should be construed so as to 

affect the Federal law governing the 

interest rate a financial institution may 

charge.132

Proposed § 232.4(b) is intended to 

track the interest-rate limit of 10 U.S.C. 

987(b). 

Proposed § 232.4(c) provides the 

framework for calculating the MAPR by: 

First, in § 232.4(c)(1), describing each of 

the charges that must be included in the 

MAPR; and second, in § 232.4(c)(2), 

prescribing the rules for computing the 

MAPR based on those charges. 

Proposed § 232.4(c)(1)(i)–(ii) is 

intended to reflect the charges that must 

be included as ‘‘interest’’ under 10 

U.S.C. 987(i)(3). Relative to the 

corresponding provisions of the 

Department’s existing rule,133 the 

language of these proposed provisions 

would be amended to reflect the broader 

scope of consumer credit subject to the 

regulation, such as by referring to ‘‘the 

credit transaction for closed-end credit 

or upon account opening for open-end 

credit’’ (emphasis added). The proposed 

exception for a bona fide fee (other than 

a periodic rate) charged to a credit card 

account would not apply to the charges 

set forth in proposed § 232.4(c)(1)(i)–(ii). 

At this time, the Department proposes 

to maintain (in proposed 

§ 232.4(c)(1)(ii)) the language of 

§ 232.3(h)(1)(iii), which requires a 

creditor to include in the MAPR ‘‘fees 

for credit-related ancillary products sold 

in connection with and either at or 

before consummation of the [consumer 

credit].’’ When adopted in 2007, 

including in the MAPR only the ‘‘creditrelated ancillary products’’ sold ‘‘either 

at or before consummation of the credit 

transaction’’ 134 was designed to be 

consistent with the scope of consumer 

credit, which covers only a narrow band 

of closed-end credit products. However, 

nothing in the MLA necessarily limits 

the inclusion in the MAPR of these 

charges only to those that are sold at the 

outset of the credit transaction. 

Particularly insofar as consumer credit 

would cover open-end credit products, 

as proposed, the MLA reasonably could 


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58618 Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 

135 10 U.S.C. 987(i)(3) (defining ‘‘ ‘interest’’’ 

generally as including ‘‘all cost elements associated 

with the extension of credit’’). 

136Amending the scope of § 232.4(c)(1)(ii) by 

eliminating the timing condition would be 

consistent with the scope of § 232.4(c)(1)(i) (which 

tracks § 232.3(h)(1)(ii) of the existing regulation), 

which does not impose a condition based on the 

timing of a sale or charge for a credit insurance 

premium. 

137 32 CFR 232.3(h)(2)(i) (excluding from the 

MAPR ‘‘[f]ees or charges imposed for actual 

unanticipated late payment, default, delinquency, 

or similar occurrence’’). 

138 32 CFR 232.3(h)(2)(ii) (excluding from the 

MAPR ‘‘[t]axes or fees prescribed by law that 

actually are or will be paid to public officials for 

determining the existence of, or for perfecting, 

releasing, or satisfying a security interest’’). 

139See 12 CFR 1026.4(c). 

140See 12 CFR 1026.4(c)(1) and (c)(4). 

141See also 72 FR at 50587 (explaining the need 

to define the MAPR so that covered credit products 

‘‘cannot evade the 36 percent [interest-rate] limit by 

including low interest rates with high fees 

associated with origination, membership, 

administration, or other cost that may not be 

captured in the TILA definition of APR’’). 

142 10 U.S.C. 987(i)(3). 

143 10 U.S.C. 987(h)(1) (authorizing the 

Department to prescribe regulations to carry out the 

MLA); 10 U.S.C. 987(h)(2)(B) (authorizing the 

Department to establish ‘‘[t]he method for 

calculating the applicable annual percentage rate of 

interest on such obligations, in accordance with the 

limit established under [the MLA]’’). 

144A creditor subject to § 1026.40 of Regulation 

Z is not required to comply with § 1026.14(c) (‘‘[that 

type of] creditor may, at its option, disclose an 

effective annual percentage rate pursuant to 

§ 1026.7(a)(7) and compute the effective annual 

percentage [in accordance with the subparagraphs 

of § 1026.14(c)]’’). However, for the purposes of 

complying with the Department’s proposed rule 

when computing a MAPR for open-end credit, any 

creditor subject to the Department’s regulation 

would be required to comply with that proposed 

§ 1026.14(c), subject to the proposed 

§ 232.4(c)(2)(ii)(B) (in the event that there is no 

balance during a billing cycle). 

be interpreted to require a creditor to 

include in the MAPR the fee for any 

ancillary product ‘‘sold with any 

extension of credit to a [covered 

borrower]’’ so long as that ancillary 

product was ‘‘associated with the 

extension of credit’’ 135—which could 

arise at any time in an ongoing, openend account for consumer credit. The 

Department has considered whether to 

amend the language of proposed 

§ 232.4(c)(1)(ii) to require the inclusion 

in the MAPR of any fees for creditrelated ancillary products, with respect 

to open-end credit, sold either upon 

account opening or at any time during 

the existence of the account, so long as 

the consumer was a covered borrower at 

the time the account was established.136

QUESTION 16: Should the 

Department consider eliminating the 

timing condition of § 232.4(c)(1)(ii) to 

require the inclusion in the MAPR of 

any fees for credit-related ancillary 

products sold either upon account 

opening or at any time during the 

existence of an account for open-end 

consumer credit? If so, please 

specifically describe the scope of an 

amended § 232.4(c)(1)(ii). For example, 

how should the Department define a 

‘‘credit-related ancillary product?’’ How 

should the Department define the seller 

whose charge for a credit-related 

ancillary product would be subject to 

inclusion in the MAPR (i.e., ‘‘sold by the 

creditor’’ or ‘‘sold by the creditor or any 

affiliate of the creditor’’)? 

Proposed § 232.4(c)(1)(iii) is intended 

to describe the charges that must be 

included in the MAPR in light of the 

definition of consumer credit, which 

would chiefly consist of ‘‘[f]inance 

charges,’’ consistent with Regulation Z. 

In general, a charge that is excluded as 

a ‘‘finance charge’’ under Regulation Z 

also would be excluded from the 

charges that must be included when 

calculating the MAPR. As a result, 

whereas the Department’s existing 

regulation provides exclusions from the 

MAPR for late payment fees 137 and 

taxes required to be paid,138 proposed 

§ 232.4(c) omits these provisions 

because these charges (as well as other 

charges) are not finance charges under 

Regulation Z.139

However, the Department recognizes 

that, under Regulation Z, a wide range 

of charges that a creditor may impose in 

connection with a credit product are 

excluded as ‘‘finance charges,’’ 

particularly an application fee and a 

participation fee.140 If these exclusions 

from the definition of finance charge 

were to be maintained in the context of 

consumer credit covered under the 

MLA, a creditor would have a strong 

incentive to evade the interest-rate limit 

of 10 U.S.C. 987(b) by shifting the costs 

of a credit product by lowering the 

interest rate and imposing (or 

increasing) one or more of these 

excluded fees. To guard against this 

obvious result, the Department proposes 

to specifically include any application 

fee and any participation fee as charges 

that generally must be included in the 

MAPR.141 The exception for a bona fide 

fee (other than a periodic rate) charged 

to a credit card account would apply to 

the charges set forth in proposed 

§ 232.4(c)(1)(iii). 

Proposed § 232.4(c)(1)(iv) is intended 

to clarify that, even if a charge set forth 

in paragraphs (c)(1)(i)–(iii) of this 

section would be excluded from the 

finance charge under Regulation Z, that 

charge nevertheless must be included in 

the calculation of the MAPR. 

QUESTION 17: Would this approach 

to include any application fee or 

participation fee in the calculation of 

the MAPR be reasonable to implement 

the statutory provision of ‘‘interest,’’ 

which covers ‘‘any other charge or 

premium with respect to the extension 

of consumer credit?’’ 142

1. Computing the MAPR 

The proposed rule contains two 

provisions for computing the MAPR,143

both of which track the methods already 

established in Regulation Z. 

First, for closed-end credit, the 

proposed rule would require a creditor 

to follow ‘‘the rules for calculating and 

disclosing the ‘Annual Percentage Rate 

(APR)’ for credit transactions under 

Regulation Z,’’ based on the charges 

required for the MAPR, as set forth in 

proposed § 232.4(c)(1). In general, the 

requirements for calculating the APR for 

closed-end credit under Regulation Z 

are found in § 1026.22(a)(1), and include 

the explanations and instructions for 

computing the APR set forth in 

appendix J to part 1026. 

For example, the MAPR for single 

advance, single payment transactions, 

such as some types of deposit advance 

loans, must be computed in accordance 

with the rules in Regulation Z, such as 

by following the instructions described 

in paragraph (c)(5) of appendix J. Based 

on the formula provided in paragraph 

(c)(5) of appendix J, in the case of a 

single advance, single payment 

transaction loan extended to a covered 

borrower for a period of 45 days, and for 

which the advance is $500 and the 

single payment required consists of the 

principal amount plus a finance charge 

of $28.44, for a total payment of 

$528.44, the MAPR would be 46.14 

percent. In this example, the resultant 

MAPR would exceed the interest-rate 

limit imposed by 10 U.S.C. 987(b), as set 

forth in proposed § 232.4(b) of the 

regulation. 

Second, for open-end credit, a 

creditor generally would be required to 

calculate the MAPR using the methods 

prescribed in § 1026.14(c)–(d) of 

Regulation Z, which relates to the 

‘‘effective annual percentage rate.’’ 144

Section 1026.14(c) of Regulation Z 

provides for the methods of computing 

the annual percentage rate under three 

scenarios: (1) When the finance charge 

is determined solely by applying one or 

more periodic rates; (2) when the 

finance charge includes a fixed charge 

that is not due to application of a 

periodic rate, other than a charge with 

respect to a specific transaction; and (3) 

when the finance charge includes a 

charge relating to a specific transaction 

during the billing cycle. 


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Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 58619 

For example, suppose a creditor offers 

a line of credit to a covered borrower 

primarily for personal, family, or 

household purposes (commonly referred 

to as a ‘‘personal line of credit’’), and 

permits the borrower to repay on a 

monthly basis. Upon establishing the 

personal line of credit, the covered 

borrower borrows $500. The creditor 

charges a periodic rate of 0.006875 

(which corresponds to an annual rate of 

8.25 percent), plus a fee of $25, charged 

when the account is established and 

annually thereafter. Under these 

circumstances, pursuant to 

§ 1026.14(c)(2) of Regulation Z the 

creditor would calculate the MAPR as 

follows: ‘‘Dividing the total amount of 

the finance charge for the billing 

cycle’’—which is $3.44 (corresponding 

to (0.006875) × ($500)), plus $25—‘‘by 

the amount of the balance to which it 

is applicable’’—$500—and multiplying 

the quotient (expressed as a percentage) 

by the number of billing cycles in a 

year’’—12 (since the creditor allows the 

borrower to repay monthly), which is 

68.26 percent. In this example, even 

though the periodic rate (0.006875) 

would comply with the interest-rate 

limit under proposed § 232.4(b), the 

resultant MAPR would be in excess of 

that limit because the amount borrowed 

is low at the time the annual fee is 

imposed. If the covered borrower 

instead borrows a higher amount, then 

the creditor still could impose the $25 

annual fee and comply with proposed 

§ 232.4(b); for example, if the amount 

initially borrowed is $1,400, then the 

resultant MAPR would be 24.73, well 

below the 36 percent limit. 

In the case of open-end credit 

extended through a credit card account, 

a creditor likewise would be required to 

calculate the MAPR using the methods 

prescribed in § 1026.14(c)–(d) of 

Regulation Z. For example, if a creditor 

extends credit to a covered borrower 

through a credit card account and the 

borrower incurs a finance charge 

relating to a specific transaction, such as 

a cash advance transaction, during the 

billing cycle, then the creditor would 

calculate the MAPR under the 

instructions set forth in § 1026.14(c)(3) 

of Regulation Z. However, in the case of 

a credit card account the creditor may 

exclude, pursuant to proposed 

§ 232.4(c)(1)(iii), any bona fide fee (as 

described in proposed § 232.4(d)) from 

the finance charges that otherwise must 

be accounted for; thus, if a charge for 

the cash advance transaction fits within 

the exclusion for a bona fide fee under 

proposed § 232.4(d), then that charge 

would not be included when computing 

the MAPR for that billing cycle. 

Under certain circumstances, a 

creditor might not know at the outset of 

a billing cycle whether the borrower’s 

use of an open-end line of credit will 

lead to a finance charge that—through a 

combination of rates and fees—exceeds 

the interest-rate limit of the MLA. 

However, at the end of a billing cycle 

the creditor would be able to calculate 

the total charges included in the MAPR 

and waive an amount necessary to 

comply with the 36-percent limit of 

§ 232.4(b). 

QUESTION 18: Are there operational 

issues with the use of the effective APR 

methodology for open-end credit 

products that the Department should 

consider? If so, are there alternative 

methods for calculating the MAPR for 

these products that would be consistent 

with 10 U.S.C. 987 and that would 

address the operational issues? 

Proposed § 232.4(c)(2)(ii)(B) generally 

would prohibit a creditor from imposing 

a charge in an open-end credit plan for 

any billing cycle during which there is 

no balance. However, this provision 

would include an exception for a 

participation fee (which otherwise 

would be required to be included under 

proposed § 232.4(c)(1)(iii)(B)) because 

the Department believes that there 

might be circumstances in which a 

creditor should be allowed to charge a 

bona fide fee for maintaining an openend line of credit for a covered 

borrower. Still, recognizing that a 

creditor could structure a high-cost, 

open-end line of credit to fit within this 

exception by substantially increasing 

the participation fee, the Department 

proposes to limit that fee to $100 per 

annum, regardless of the billing cycle in 

which the participation fee is imposed. 

The Department believes that $100 is 

the highest reasonable amount that a 

creditor could charge as a bona fide 

participation fee, during a billing cycle 

in which there is no balance, for the 

purposes of keeping the line of credit 

open to the covered borrower. 

Furthermore, proposed 

§ 232.4(c)(2)(ii)(B) would contain a 

provision to clarify that the $100-per 

annum limitation on the amount of the 

participation fee does not apply to a 

bona fide participation fee charged to a 

credit card account that would be 

eligible for the exclusion under 

proposed § 232.4(d). We seek comment 

on whether the limit on a participation 

fee to $100 per annum is reasonable and 

economically justifiable. 

2. Conditional Exclusion From the 

MAPR for Bona Fide Fees Charged to a 

Credit Card Account 

The Department believes that credit 

card products may warrant special 

consideration under the MLA. As 

discussed above, proposed § 232.4(d) 

would provide the conditional 

exclusion, including standards relating 

to the conditions, that allows a creditor 

to exclude bona fide fees charged to a 

credit card account from the MAPR. The 

Department believes that the proposed 

conditions for excluding a bona fide fee 

from the MAPR—namely, that the fee 

must be ‘‘reasonable’’ and 

‘‘customary’’—would fairly allow 

Service members and their dependents 

to continue to have access to credit card 

products and limit the opportunity for 

a creditor to exploit the exclusion for 

those products. 

However, as set forth in proposed 

§ 232.4(d)(4), a creditor who imposes 

any fee that is not a bona fide fee or that 

fails to meet the conditions of being 

‘‘reasonable and customary’’ must 

include the total amount of those fees, 

including any bona fide fees, in the 

MAPR. Thus, if a creditor charges one 

unreasonable fee or a fee that is not 

customary in a credit card account for 

a covered borrower, the creditor must 

include the total amount of the fees— 

including any fee(s) that otherwise may 

be eligible for the exclusion—in the 

MAPR. As discussed above, the 

‘‘reasonable and customary’’ conditions 

for a bona fide fee, as proposed, are 

intended to be applied flexibly so that, 

in general, creditors may continue to 

offer a wide range of credit card 

products that carry reasonable costs 

expressly tied to specific products or 

services and which vary depending 

upon the covered borrower’s own 

choices regarding the use of the card. 

Section 232.5 Identification of 

Covered Borrowers 

As discussed above and except as 

provided in § 232.5(c), proposed § 232.5 

would provide a mechanism for a 

creditor to unilaterally assess the status 

of a consumer who applies for consumer 

credit if: First, the creditor checks the 

MLA Database to determine that 

consumer-applicant’s status when the 

creditor enters into a transaction or 

establishes an account for consumer 

credit; second, the consumer-applicant 

does (or does not) appear in the MLA 

Database; and, third, the creditor retains 

a record of the information obtained 

from the MLA Database. In addition, 

proposed § 232.5(a) would expressly 

provide that a creditor is permitted to 

use other methods, as the creditor may 

elect, to assess whether a consumer is a 

covered borrower. 

Proposed § 232.5(c)(1) would provide 

that a creditor who has actual 

knowledge that a consumer is a covered 

borrower must ‘‘treat the consumer as a 


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58620 Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 

145 32 CFR 232.6(a). 

146When adopting its rule in 2007, the 

Department addressed the disclosure requirements 

of Regulation Z, see, e.g., 72 FR at 50588, but did 

not address the purposes of imposing a clear-andconspicuous requirement under 10 U.S.C. 987(c). 

147 12 CFR 1026.5(a)(1)(i) and 1026.17(a)(1). 

148See, e.g., 12 CFR 1026(a)(3)(iii) (requiring 

‘‘[c]ertain account-opening disclosures [to] be 

provided in a tabular format’’); see also, e.g., 12 CFR 

1026.17(a)(1) (prescribing the format of the TILA 

disclosures for closed-end credit transactions to be 

‘‘grouped together, [and] segregated from everything 

else’’). 

149See 72 FR at 50588. Accordingly, the 

information required under the MLA should not be 

interspersed with the TILA disclosures. 

150 72 FR at 50589. 

151 10 U.S.C. 987(c)(2). As enacted, the MLA 

refers in this section to regulations ‘‘issued by the 

covered borrower notwithstanding any 

determination by that creditor based on 

information obtained from the [MLA 

Database].’’ The Department intends for 

this exception to the safe harbor in 

proposed § 232.5(b) to apply so that a 

creditor may not take advantage of an 

obvious error in the MLA Database 

when the creditor knows otherwise, and 

the Department expects these 

circumstances to be rare. 

Proposed § 232.5(c)(2) would state 

that ‘‘actual knowledge’’ of the status of 

a consumer as a covered borrower may 

be established ‘‘only on the basis of a 

record (including any electronic record) 

collected by the creditor prior to 

entering into a transaction or 

establishing an account for consumer 

credit and maintained in any system 

used by the creditor that relates to the 

consumer credit involving that 

consumer.’’ This proposed paragraph 

(c)(2) is intended to provide an 

evidentiary standard to establish 

whether a creditor might have ‘‘actual 

knowledge’’ with respect to a 

consumer’s status relating to a consumer 

credit transaction or account. 

Depending on the circumstances, actual 

knowledge may be established based on 

the presence of one or more records 

maintained in the relevant system the 

creditor uses for the consumer credit 

transaction or account; under proposed 

§ 232.5(c)(2), actual knowledge may not 

be established solely on the basis of 

other kinds of evidence, such as solely 

on testimony from a borrower that, 

during the application process, the 

borrower told the creditor’s employee 

that the borrower is a Service member 

on active duty. 

QUESTION 19: What alternatives 

should the Department consider for the 

evidentiary standard articulated in 

proposed § 232.5(c)(2)? Please provide 

specific language for provisions that 

would implement these alternatives. 

Section 232.6 Mandatory Loan 

Disclosures 

The Department proposes to amend 

§ 232.6 of the regulation to simplify the 

information that a creditor must provide 

to a covered borrower when issuing 

consumer credit, consistent with the 

requirements of 10 U.S.C. 987(c). In 

particular, the Department is proposing, 

first, to eliminate the current 

requirement for information to be 

provided ‘‘clearly and conspicuously’’ 

and, second, to require a creditor to 

provide a ‘‘statement’’ of the MAPR that 

describes the charges the creditor may 

impose, instead of the periodic rate of 

the MAPR itself ‘‘and the total amount 

of all charges included in the MAPR,’’ 

as the existing regulation currently 

requires. 

Proposed § 232.6(a) would require a 

creditor to provide four categories of 

information to a covered borrower at the 

time the borrower becomes obligated on 

the transaction or establishes an account 

for the consumer credit. namely: 

• A statement of the MAPR 

applicable to the extension of consumer 

credit; 

• Any disclosure required by 

Regulation Z, which shall be provided 

only in accordance with the 

requirements of Regulation Z that apply 

to that disclosure; 

• A clear description of the payment 

obligation of the covered borrower, as 

applicable. A payment schedule (in the 

case of closed-end credit) or accountopening disclosure (in the case of openend credit) provided pursuant to 

paragraph (a)(2) of this section satisfies 

this requirement; and 

• A statement [describing the 

protections afforded to Service members 

and their dependents under the MLA].’’ 

1. Clear and Conspicuous Requirement 

The Department’s existing regulation 

requires each of these categories of 

information to be provided ‘‘clearly and 

conspicuously’’ to a covered 

borrower.145 There might be some 

benefits to covered borrowers by 

requiring certain information to be 

provided in a manner that, relative to 

other terms and conditions relating to 

the extension of or account for 

consumer credit, makes that information 

clear and conspicuous.146 However, 

nothing in 10 U.S.C. 987(c) requires 

information to be provided ‘‘clearly and 

conspicuously.’’ In addition, Regulation 

Z independently generally requires 

disclosures regarding the costs of credit 

to be provided ‘‘clearly and 

conspicuously,’’ 147 and requires a 

creditor to present some types of 

information in those disclosures in 

certain formats.148 The Department 

believes that—particularly in light of the 

proposal to extend the protections of the 

MLA to a broader range of transactions 

of and accounts for consumer credit—a 

creditor should be relieved from the 

obligation to present the categories of 

information required under 10 U.S.C. 

987(c)(1)(A) and 987(c)(1)(C) in a 

manner that is clear and conspicuous. 

However, the Department continues to 

intend that the information which 

would be required to be provided to a 

covered borrower must be provided 

consistent with the format and other 

requirements of Regulation Z.149

QUESTION 20: If the Department 

were to adopt a regulation as proposed, 

to what extent, and in what manner, 

would the elimination of the clear-andconspicuous requirement affect the 

presentation of the categories of 

information required under 10 U.S.C. 

987(c)(1)(A) and 987(c)(1)(C)? 

2. Statement of the MAPR 

Proposed § 232.6(a)(1) would require 

a creditor to provide a ‘‘statement’’ of 

the MAPR, instead of ‘‘[t]he MAPR 

applicable to the extension of consumer 

credit, and the total dollar amount of all 

charges included in the MAPR,’’ as 

required under § 232.6(a)(1) of the 

existing regulation. When adopting this 

requirement in 2007, the Department 

recognized that the disclosure of the 

figures relating to the MAPR would 

apply only to the discrete forms of 

closed-end credit defined as ‘‘consumer 

credit,’’ and therefore interpreted the 

language of 10 U.S.C. 987(c)(1)(A) to 

require an annual percentage rate of 

interest. Nonetheless, the Department 

then recognized ‘‘the potential 

confusion inherent in mandating the 

disclosure of two differing annual 

percentage rates (the MAPR required by 

[its] regulation and the APR required by 

TILA).’’ 150 The Department now 

believes that this same ‘‘potential 

confusion’’ would be significantly 

magnified in the context of a wider 

range of closed-end and open-end credit 

products that, under this proposal, 

would be covered under the MLA. 

Section 987(c)(1)(A) of the MLA does 

not, by its terms, require the disclosure 

of a particular annual percentage rate or 

the ‘‘amount of all charges’’ applicable 

to the extension of consumer credit. 

Rather, 10 U.S.C. 987(c)(1)(A) requires a 

‘‘statement of the annual percent rate of 

interest applicable to the extension of 

credit’’ (emphasis added), and 10 U.S.C. 

987(c)(2) independently requires 

‘‘[s]uch disclosures [to] be presented in 

accordance with terms prescribed by the 

regulations . . . to implement the 

[TILA].’’ 151 Taken singly and in 


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Board of Governors of the Federal Reserve System’’ 

(Board) to implement TILA. Subject to certain 

exceptions, notably under section 1029(c) of the 

Consumer Financial Protection Act of 2010, 12 

U.S.C. 5519(c), the Board’s authorities to prescribe 

rules implementing the federal consumer financial 

laws have been transferred to the Bureau. 12 U.S.C. 

5581. Accordingly, the Department now generally 

looks to the rules prescribed by the Bureau 

implementing TILA, except with respect to certain 

creditors. See proposed § 232.3(p) (describing the 

application of the Board’s Regulation Z, 12 CFR part 

226, to certain creditors). 

152See 12 U.S.C. 1026(c). 

153 In this regard, the Department also recognizes 

that many creditors likely would adopt disclosures 

and contract documents that would be designed to 

be provided to both consumers who are not entitled 

to the protections under the MLA and to covered 

borrowers. The Department’s proposed 

interpretation of sections 987(i)(4), 987(c)(1)(A), and 

987(c)(1)(B) of the MLA, which would require a 

creditor to provide the cost disclosures only 

required by TILA, would reduce the general 

confusion to non-covered borrowers assessing the 

costs of credit products that are not covered by the 

MLA. 

154 10 U.S.C. 987(h)(1) (authorizing the 

Department to prescribe regulations to carry out the 

MLA); 10 U.S.C. 987(h)(2)(A) (authorizing the 

Department to prescribe regulations establishing 

‘‘[d]isclosures required of any creditor that extends 

consumer credit to a [covered borrower]’’). 

155 72 at 50589. 

156See 10 U.S.C. 987(c)(1) (requiring information 

to be provided ‘‘orally’’). 

conjunction with each other, these 

provisions of § 987(c) reasonably should 

be interpreted as requiring a 

‘‘statement’’ regarding the MAPR and, 

separately, disclosures regarding the 

particular costs of credit relating to a 

transaction of or account established for 

consumer credit that are ‘‘in accordance 

with the terms’’ of Regulation Z. 

In addition, section 987(i)(4) of the 

MLA provides that the term ‘‘ ‘annual 

percentage rate’ has the same meaning 

as in section 107 of [TILA], as 

implemented by regulations of the 

[Bureau].’’ That term also includes ‘‘all 

fees and charges,’’ including certain 

charges that may be exempt from the 

term ‘‘finance charge’’ under Regulation 

Z.152 The Department believes that, in 

light of section 987(i)(4) (‘‘‘annual 

percentage rate’ has the same meaning 

as in section 107 of [TILA], as 

implemented by the [Bureau]’’), section 

987(c)(1)(A) of the MLA (‘‘A statement 

of the annual percentage rate of 

interest’’) should not be interpreted to 

require a creditor to calculate and 

disclose to a covered borrower a 

definitive figure for the ‘‘annual 

percentage rate’’ of interest applicable to 

the consumer credit that could include 

additional charges that must be counted 

as ‘‘interest,’’ and thereby would be 

materially different from the figure the 

creditor is required (under section 

987(c)(1)(B) of the MLA) to compute and 

disclose under TILA. Instead, the 

Department believes that the 

appropriate approach to interpret the 

tension between sections 987(i)(4), 

987(c)(1)(A), and 987(c)(1)(B) is to 

subject a creditor to one set of 

requirements for calculating and 

disclosing the costs of the extension of 

credit, namely, the requirements under 

TILA. One clear and beneficial 

consequence of interpreting these 

ambiguous provisions of the MLA under 

this approach is that a creditor would 

not be required to provide to a covered 

borrower two different numerical 

disclosures, which inevitably would 

lead to confusion.153

In light of the scope of the proposed 

definition of consumer credit, which 

would encompass open-end credit 

products, the Department proposes to 

exercise its discretion under the 

MLA 154 to interpret 10 U.S.C. 

987(c)(1)(A) more straightforwardly to 

require, in § 232.6(c), a creditor to 

provide a description of ‘‘the charges 

the creditor may impose, in accordance 

with this part and subject to the terms 

and conditions of the agreement relating 

to the consumer credit to calculate the 

MAPR.’’ This proposed section also 

would clarify that a creditor would not 

be required to ‘‘describe the MAPR as a 

numerical value or to describe the total 

dollar amount of all charges in the 

MAPR that apply to the extension of 

consumer credit.’’ The Department 

believes that the disclosure of the items 

relating to the costs of consumer credit 

(e.g., a periodic rate and other finance 

charges) that apply to a particular 

transaction or account, including the 

format of those items, should be 

governed under Regulation Z, consistent 

with the provisions of 10 U.S.C. 

987(c)(1)(B) and 987(c)(2). Accordingly, 

under the Department’s proposal, a 

creditor should be able to streamline its 

compliance with these requirements 

under 10 U.S.C. 987(c) by providing to 

a covered borrower the same disclosures 

the creditor must (in any event) provide 

to a consumer under Regulation Z, plus 

a statement of the MAPR. In order to 

facilitate compliance with that latter 

requirement, proposed § 232.6(c)(3) 

provides a model statement that a 

creditor could use. 

Proposed § 232.6(c)(2) provides that a 

creditor may include a statement of the 

MAPR in its agreement with the covered 

borrower for the transaction of or 

account established for consumer credit. 

Consistent with the Department’s 

interpretation of its existing 

regulation,155 proposed § 232.6(c)(2) 

would expressly provide that the 

statement of the MAPR is not required 

in any advertisement relating to 

consumer credit. 

QUESTION 21: If the Department 

were to adopt a regulation as proposed, 

to what extent, and in what manner, 

would the requirement to provide a 

description of ‘‘the charges the creditor 

may impose, in accordance with this 

part and subject to the terms and 

conditions of the agreement relating to 

the consumer credit to calculate the 

MAPR,’’ instead of a definitive figure for 

the ‘‘annual percentage rate’’ of interest 

applicable to the consumer credit, affect 

the offering or provision of that credit to 

a covered borrower? 

3. One-Time Delivery of Information; 

Methods of Delivery; Refinancing a 

Covered Loan 

Proposed § 232.6(b) would establish 

rules relating to transactions involving a 

creditor and assignee or multiple 

creditors. More specifically, proposed 

§ 232.6(b)(1) would provide that the 

information required under the MLA is 

‘‘not required to be provided to a 

covered borrower more than once for 

the transaction or the account 

established for consumer credit with 

respect to that borrower.’’ (However, the 

disclosures required by Regulation Z, 

described in proposed § 232.6(a)(2), 

would remain subject to Regulation Z, 

and not the one-time delivery provision 

in proposed § 232.6(b)(1).) Proposed 

§ 232.6(b)(2) would require multiple 

creditors to agree among themselves as 

to how to provide the information 

required under the MLA. 

Proposed § 232.6(d) would establish 

rules relating to the methods of delivery, 

which are substantively similar to the 

rules under the existing regulation. 

Under proposed § 232.6(d)(1), a creditor 

would be required to provide the 

information required under the MLA 

‘‘in writing in a form the covered 

borrower can keep.’’ And under 

proposed § 232.6(d)(2), consistent with 

the structure and intent of the existing 

regulation,156 a creditor would be 

required to orally provide the 

information required under the MLA, or 

provide a method for the covered 

borrower to obtain oral disclosures 

when the borrower engages in a mail 

transaction, an internet transaction, or a 

credit transaction conducted at the 

point-of-sale in connection with the sale 

of a nonfinancial product or service. In 

this regard, the Department recognizes 

that its proposal to extend the scope of 

consumer credit to apply to a broader 

range of closed-end and open-end credit 

products would encompass credit 

offered at retail locations for 

nonfinancial products or services; 

similar to the treatment of a mail or 

internet transaction under the existing 


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157When proposing its initial regulation in April 

2007, the Department addressed the disclosure 

requirements under § 232.6(a) and stated: ‘‘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.’’ 72 FR at 18165. 158 10 U.S.C. 987(h)(2)(A). 

159 32 CFR 232.8(a)(1). 

160 72 FR at 50589. 

161 In addition, the Department proposes to 

substantially preserve the provision which 

currently states: ‘‘This part shall not apply to a 

transaction permitted by this paragraph when the 

same creditor extends consumer credit to a covered 

borrower to refinance or renew an extension of 

credit that was not covered by this part because the 

consumer was not a covered borrower at the time 

of the original transaction.’’ 

162 10 U.S.C. 987(h)(1) (authorizing the 

Department to prescribe regulations to carry out the 

MLA); 10 U.S.C. 987(i)(5)(A)(ii) (authorizing the 

Department to establish ‘‘additional criteria [for the 

definition of creditor] as are specified for such 

purpose in regulations prescribed under [the 

MLA]’’). 

regulation, the Department believes that, 

because a creditor is not present to 

interact orally with a covered borrower, 

the creditor should be permitted to 

provide a toll-free telephone number on 

or with the written disclosures so that 

the borrower may obtain the oral 

disclosures when obtaining consumer 

credit at the point-of-sale for a 

nonfinancial product or service. 

Proposed § 232.6(e) would keep intact 

the current provision, currently found 

in § 232.6(c) of the Department’s 

regulation, that requires ‘‘a new 

statement’’—to correspond with the 

statement of the MAPR under proposed 

§ 232.6(a)(1)—and ‘‘disclosures under 

this section only when the transaction 

for that credit would be considered a 

new transaction that requires 

disclosures under Regulation Z.’’ 

4. Proposal To Eliminate Disclosure 

Under § 232.6(a)(4) 

Under the Department’s existing 

regulation (as well as this proposed 

regulation), § 232.6(a)(4) requires a 

creditor to provide to a covered 

borrower a specific statement regarding 

protections for Service members and 

their dependents under Federal law and 

resources that may be available to assist 

them with financial matters (‘‘Statement 

of Federal Protections’’). Consistent 

with the Department’s stance when 

proposing its initial regulation in 

2007,157 the Department intends to 

develop this regulation so that its 

provisions are true to the intent of the 

MLA without creating a system that is 

so burdensome that the creditor cannot 

comply. If the Department were to adopt 

in the final rule the provisions relating 

to the statement of the MAPR, including 

the model statement set forth in 

proposed § 232.6(c)(3), and maintain the 

general statement regarding the 

protections under the MLA, under 

§ 232.6(a)(4), a creditor effectively 

would be required to provide two, 

potentially overlapping items of 

information before or at the time the 

covered borrower becomes obligated on 

the transaction or establishes an account 

for the consumer credit. The 

Department recognizes that, whereas a 

‘‘statement’’ of the MAPR is required by 

10 U.S.C. 987(c)(1)(A), the Statement of 

Federal Protections under § 232.6(a)(4) 

is solely a function of the Department’s 

discretion to require a creditor to 

provide certain disclosures.158 In light 

of other aspects of the Department’s 

proposal, the Department is concerned 

that these two, potentially duplicative 

disclosure requirements could create a 

system that would be relatively 

burdensome for a creditor to comply 

with. The Department recognizes the 

need to consider balancing Service 

members’ and their dependents’ 

interests in receiving useful information 

with creditors’ compliance burdens; 

thus, the Department could take certain 

steps to reduce the overall amount of 

and simplify the information relating to 

extensions of consumer credit. 

Accordingly, the Department is 

considering whether to eliminate 

§ 232.6(a)(4) that requires a creditor to 

provide the Statement of Federal 

Protections. 

QUESTION 22: Please specifically 

describe the benefits currently provided 

to a covered borrower by requiring a 

creditor to provide a specific statement 

describing the protections afforded to 

Service members and their dependents 

under the MLA, as set forth in 

§ 232.6(a)(4). What would be the likely 

costs or benefits of eliminating the 

requirement in § 232.6(a)(4) to provide 

this specific statement? 

QUESTION 23: The Department 

solicits comment on whether the 

proposal adequately addresses 

compliance challenges involving the 

provision of oral disclosures required by 

the MLA. The Department invites 

comment on alternatives that would 

balance the informational needs of 

covered borrowers with the compliance 

burden of creditors. 

Section 232.7 Preemption 

Proposed § 232.7 would revise the 

corresponding section of the 

Department’s existing regulation to 

reflect amendments to 10 U.S.C. 

987(d)(2) enacted in section 661(a)(1) of 

the 2013 Act. In particular, § 232.7(b)(1) 

would be amended to reflect the 

prohibition against a state to authorize 

creditors to charge covered borrowers 

rates of interest for ‘‘any consumer 

credit or loans’’ that are higher than the 

legal limit for residents of the state 

(emphasis added). To mirror the 

language in 10 U.S.C. 987(d)(2), 

proposed § 232.7(b)(1) also would revise 

the term ‘‘rates of interest’’ to ‘‘annual 

percentage rates of interest.’’ 

Additionally, § 232.7(b)(2) would be 

amended to clarify that the prohibition 

against a state to permit a violation or 

waiver of any state law protections on 

the basis of a covered borrower’s 

nonresident or military status to 

protections ‘‘covering consumer credit,’’ 

consistent with the amendment in 

section 661(a)(2) of the 2013 Act. 

Section 232.8 Limitations 

When the Department adopted its 

initial regulation in 2007, § 232.8(a) 

provided an exception from the 

prohibition, set forth in 10 U.S.C. 

987(e)(1), against rolling over, renewing, 

or refinancing consumer credit that had 

been extended to a covered borrower by 

the same creditor. The exception allows 

the same creditor to renew or refinance 

consumer credit to the covered borrower 

if ‘‘the new transaction results in more 

favorable terms to the covered borrower, 

such as a lower MAPR.’’ 159 Commenters 

on the Department’s initial proposal 

expressed concerns that the morefavorable-terms standard was ‘‘too 

subjective and would create uncertainty 

about what terms are ‘more beneficial,’ ’’ 

and ‘‘suggested that financial 

institutions might err on the side of 

caution and forego entering transactions 

that could benefit the borrower in order 

to avoid any potential liability.’’ 160

Whereas the existing exception had 

been adopted in the context of a narrow 

band of products within the three 

categories initially defined as consumer 

credit, this proposal to extend the scope 

of consumer credit increases the 

potential risks associated with any 

perceived ambiguity in the morefavorable-terms standard. 

Proposed § 232.8(a) would track the 

language of the refinancing prohibition 

of 10 U.S.C. 987(e)(1),161 but would 

limit the application of that prohibition 

to a relatively narrow group of creditors. 

More specifically, the Department 

would exercise its discretion to define a 

creditor for the purposes of 10 U.S.C. 

987 162 by defining—only for the 

purposes of § 232.8(a)—the term 

‘‘creditor’’ to mean ‘‘a person engaged in 

the business of extending consumer 

credit subject to applicable law to 

engage in deferred presentment 

transactions or similar payday loan 

transactions (as described in the 


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163See 2006 Report, at 14. See also Consumer 

Financial Protection Bureau, Payday Loans and 

Deposit Advance Products 24–25 (April 2013), 

available at http://files.consumerfinance.gov/f/

201304_cfpb_payday-dap-whitepaper.pdf 

(discussing the sustained use of payday loans, and 

stating that for consumers who conducted at least 

seven payday loan transactions in a year, the 

majority of those transactions ‘‘were taken on a 

nearly continuous basis.’’). 

164 10 U.S.C. 987(h)(1) (authorizing the 

Department to prescribe regulations to carry out the 

MLA); 10 U.S.C. 987(i)(5)(A)(ii) (authorizing the 

Department to establish ‘‘additional criteria [for the 

definition of creditor] as are specified for such 

purpose in regulations prescribed under [the 

MLA]’’). 

165 37 U.S.C. 1007(h). 

166See Army Emergency Relief: http://

www.aerhq.org/dnn563/Portals/0/

AERAnnualReport2012.pdf, ‘‘[i]n 2012, AER 

provided more than $68.6 million in no-interest 

loans and grants to 55,342 Soldiers and Families 

and their Families;’’ Air Force Aid Society: http:// 

www.afas.org/file/documents/2012-AnnualReport.pdf, ‘‘2012 direct assistance totaled nearly 

$18 million, and includes more than 40,000 assists 

to Airmen and their families;’’ Navy-Marine Corps 

Relief Society http://b.3cdn.net/nmcrs/

45f955f5204f8ca1df_mlbruu7ib.pdf, ‘‘FY12 63,392 

Clients received financial assistance, $41.8 

million;’’ Coast Guard Mutual Aid: http://

www.cgmahq.org/Financial/AnnualReports/

2012.pdf, ‘‘[o]verall in 2012, CGMA distributed 

more than $4.27 million in direct financial 

assistance to over 5,900 Coast Guard individuals 

and their families.’’ 

relevant law), provided however, that 

the term does not include a person that 

is chartered or licensed under Federal or 

State law as a bank, savings association, 

or credit union.’’ Restricting the 

application of the refinancing 

prohibition to creditors who are engaged 

in the business of ‘‘deferred 

presentment transactions or similar 

payday loan transactions (as described 

in the relevant law)’’ would be 

consistent with the structure, language, 

and intent of the prohibition, which is 

designed to apply to a creditor who rolls 

over, renews, repays, refinances, or 

consolidates consumer credit that the 

creditor itself already extended to a 

covered borrower, thereby ensnaring the 

borrower in the debt trap that the 

Department described in its 2006 

Report.163 The Department believes that 

payday lenders commonly engage in 

these transactions. Moreover, the 

Department believes that restricting the 

application of the refinancing 

prohibition to that specified class of 

creditors would permit most creditors, 

including a wide range of banks, thrifts, 

and credit unions, to offer beneficial 

forms of consumer credit, such as 

workout loans and other favorable 

refinancing transactions, to their 

covered-borrower customers. 

Proposed § 232.8(e) generally would 

track the language of § 232.8(a)(5) of the 

existing regulation. 

Proposed § 232.8(f) would track the 

language of the prohibition of 10 U.S.C. 

987(e)(6), but would provide an 

exemption for a unique class of 

creditors. More specifically, the 

Department would exercise its 

discretion to define a creditor for the 

purposes of 10 U.S.C. 987 164 by 

excluding—only for the purposes of 

§ 232.8(f)—from the term ‘‘creditor’’ 

military welfare societies and the 

service relief societies, as described in 

10 U.S.C. 1033(b)(2) and 37 U.S.C. 

1007(h)(4) and: Army Emergency Relief, 

the Air Force Aid Society, the NavyMarine Corps Relief Society, and the 

Coast Guard Mutual Assistance. Federal 

law provides that a loan to a Service 

member from one of these specified 

Relief Societies may be repaid through 

deductions from the pay of the 

borrowing Service member.165

In the Department’s experience, the 

specified Relief Societies provide 

essential emergency financial assistance 

to Service members. The specified 

Relief Societies make low- and no-cost 

loans, as well as grants, to Service 

members repayable through an 

allotment of military pay.166

Recognizing the unique and important 

role of the specified Relief Societies, 

and the long history of the specified 

Relief Societies in supporting the 

welfare of Service members and their 

families, the Department encourages 

Service members facing financial need 

to utilize the services provided by the 

specified Relief Societies. 

In light of the specialized operations 

of each of the specified Relief Societies, 

which currently depend crucially on the 

use of an allotment from a Servicemember borrower’s pay, and consistent 

with the Department’s regulations on 

deductions from pay under 37 U.S.C. 

1007, the Department proposes to 

exclude the Relief Societies specified in 

10 U.S.C. 1033(b)(2) and 37 U.S.C. 

1007(h)(4) from the definition of 

‘‘creditor’’ only for the purposes of the 

prohibition in § 232.8(f). 

In all other respects, proposed § 232.8 

would substantially preserve the 

language of the existing provisions of 

§ 232.8. However, the Department 

proposes to amend the structure of 

§ 232.8 by eliminating subsection 

§ 232.8(b) (and make other conforming 

amendments) because the definition of 

‘‘creditor,’’ in proposed § 232.3(i)(2), 

would include an assignee of a covered 

creditor. 

QUESTION 24: What would be the 

likely costs or benefits of revising the 

refinancing prohibition in 10 U.S.C. 

987(e)(1) to apply only to a specific type 

of creditor who is ‘‘engaged in the 

business of extending consumer credit 

subject to applicable law to engage in 

deferred presentment transactions or 

similar payday loan transactions (as 

described in the relevant law),’’ and to 

not include a creditor that is ‘‘chartered 

or licensed under Federal or State law 

as a bank, savings association, or credit 

union?’’ 

QUESTION 25: What would be the 

likely costs or benefits of amending the 

prohibition in 10 U.S.C. 987(e)(5) to 

apply to creditors other than a creditor 

who is ‘‘chartered or licensed under 

Federal or State law as a bank, savings 

association, or credit union?’’ 

QUESTION 26: Should the 

Department consider a broader 

exemption from the term ‘‘creditor’’ for 

the military welfare societies and the 

service Relief Societies specified in 10 

U.S.C. 1033(b)(2) and 37 U.S.C. 

1007(h)(4)? 

Section 232.9 Penalties and Remedies 

Proposed § 232.9(a)–(d) would 

preserve the language of those 

provisions of the existing regulation. 

The Department proposes to add a new 

§ 232.9(e) to reflect (with conforming 

changes to the language) the civilliability provisions of the MLA enacted 

in section 662(a) of the 2013 Act. 

Section 232.10 Administrative 

Enforcement 

The Department proposes to add a 

new § 232.10 to reflect (with conforming 

changes to the language) the 

administrative-enforcement provisions 

of the MLA enacted in section 662(b) of 

the 2013 Act. 

Section 232.11 Servicemembers Civil 

Relief Act Provisions Unaffected 

As a consequence of adding a new 

section for the administrativeenforcement provisions, the existing 

§ 232.10 would be re-numbered to 

§ 232.11, without any change to the 

language of that section. 

Section 232.12 Effective Dates 

The Department proposes to amend 

the section relating to the effective dates 

of the regulation, now § 232.12, 

particularly to reflect the effective dates 

of amendments to the MLA enacted in 

the 2013 Act. 

Proposed § 232.12(a) would amend 

the language of § 232.11 of the existing 

regulation to reflect the amendments 

that would be adopted in the 

Department’s forthcoming final rule. 

Consistent with the current § 232.11, 

consumer credit extended to a covered 

borrower any time on or after October 1, 

2007, and up to the effective date of the 

Department’s forthcoming final rule 


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58624 Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 

167 10 U.S.C. 987 note. 

168Regulatory Planning and Review, 58 FR 51735 

(Oct. 4, 1993). 

169 Improving Regulation and Regulatory Review, 

76 FR 3821 (Jan. 21, 2011). 

would be subject to the requirements of 

the Department’s existing rule. 

Proposed § 232.12(b) generally would 

apply the requirements of the 

Department’s forthcoming final rule 

only to new transactions or accounts 

involving consumer credit that are 

consummated or established after the 

effective date of the final rule. The 

Department believes that this provision 

would be equitable, particularly to 

avoid the potential injustice and 

operational difficulties that could arise 

if new requirements under the amended 

regulation were to apply to pre-existing 

transactions or accounts involving 

consumer credit to covered borrowers. 

However, proposed § 232.12(b) would 

provide exceptions to allow certain 

provisions of § 232.7(b) and § 232.9(e), 

as discussed below, to become effective 

prior to the effective date of the 

Department’s forthcoming final rule. 

Proposed § 232.12(c) would provide 

that ‘‘the amendments to 10 U.S.C. 

987(d)(2) enacted in section 661(a) of 

the National Defense Authorization Act 

for Fiscal Year 2013 (Pub. L. 112–239, 

126 Stat. 1785), as reflected in 

§ 232.7(b), shall take effect on January 2, 

2014.’’ Section 661(c)(2)(A) of the 2013 

Act provides, in relevant part, that the 

amendments enacted in section 661(a) 

of that Act shall take effect on ‘‘the date 

that is one year after the date of 

enactment of this Act.’’ 167 As a result, 

only the amendments made in 

§ 232.7(b)(1)—adding the phrase ‘‘any 

consumer credit’’ before ‘‘loans’’—and 

§ 232.7(b)(2)—adding the phrase 

‘‘covering consumer credit’’ after ‘‘State 

consumer lending protections’’—would 

be effective on January 2, 2014. 

Proposed § 232.12(d) would provide 

that civil-liability provisions adopted in 

§ 232.9(e) ‘‘shall apply with respect to 

consumer credit extended on or after 

January 2, 2013.’’ This subsection 

reflects the effective date, established in 

section 662(c) of the 2013 Act, of the 

civil-liability provisions enacted in 

section 662(a) of that Act. 

V. Regulatory Analyses 

A. Analysis Under Executive Orders 

12866 and 13563 

In accordance with the requirements 

of Executive Orders 12866 168 and 

13563 169 (‘‘EO 12866’’ and ‘‘EO 

13563’’), the Department has assessed 

the expected costs associated with the 

proposal to amend its regulation to 

extend the protections of 10 U.S.C. 987 

to a broader range of closed-end and 

open-end credit products offered or 

extended to covered borrowers. In 

addition, the Department has provided 

a sensitivity analysis that examines 

potential benefits. 

1. Executive Summary 

EO 12866 and EO 13563 direct 

executive agencies, including the 

Department, to assess the anticipated 

present and future benefits and costs of 

available regulatory alternatives— 

including both quantitative measures 

and qualitative measures—using the 

best available techniques. A 

determination has been made that this 

proposed regulation is a significant 

regulatory action, as defined in EO 

12866 and as supplemented by EO 

13563, in that this regulation, if adopted 

as proposed, might have an annual 

effect on the economy of $100 million 

or more. Accordingly, this proposed 

regulation has been reviewed by the 

Office of Management and Budget 

(‘‘OMB’’). The regulatory impact 

assessment prepared by the Department 

for this proposed regulation is provided 

below. 

The Department anticipates that its 

regulation, if adopted as proposed, 

might impose costs of approximately 

$96 million during the first year, as 

creditors adapt their systems to comply 

with the requirements of the MLA and 

the Department’s regulation. After the 

first year and on an ongoing basis, the 

annual cost to the economy is expected 

to be approximately $20 million. The 

Department provides a sensitivity 

analysis examining scenarios in which 

the proposed rule would, if adopted, 

reduce the incidence of involuntary 

separation of Service members due to 

financial distress; the benefits under 

these scenarios range from $13 million 

to $137 million annually. 

The MLA, as implemented by the 

Department’s regulation as well as 

under this proposed regulation, 

provides two broad classes of 

requirements applicable to a creditor: 

first, the creditor may not impose an 

MAPR greater than 36 percent in 

connection with an extension of 

consumer credit to a covered borrower 

(‘‘interest-rate limit’’); second, when 

extending consumer credit, the creditor 

must satisfy certain other terms and 

conditions, such as providing certain 

information (e.g., a statement of the 

MAPR), both orally and in a form the 

borrower can keep, before or at the time 

the borrower becomes obligated on the 

transaction or establishes the account, 

by refraining from requiring the 

borrower to submit to arbitration in the 

case of a dispute involving the 

consumer credit, and by refraining from 

charging a penalty fee if the borrower 

prepays all or part of the consumer 

credit (collectively, ‘‘other MLA 

conditions’’). 

The interest-rate limit results in a 

transfer payment because the amount of 

interest revenue to be foregone by a 

creditor—that is, the amount of interest 

revenue that a creditor otherwise could 

receive by imposing an MAPR of greater 

than 36 percent—necessarily 

corresponds to the amount saved by the 

covered borrower. 

The Department recognizes that the 

other MLA conditions of the proposed 

regulation could lead to various types of 

compliance costs for creditors, and the 

estimated cumulative amount of those 

quantified costs on an ongoing, annual 

basis is approximately $20 million. The 

other MLA conditions are anticipated to 

impose direct financial costs on a 

creditor that are not reasonably 

expected to be offset by any 

quantifiable, financial benefit to a 

covered borrower. For example, the 

Department believes that, for the 

purposes of conducting this assessment 

under EO 12866 and EO 13563, the 

estimated costs on creditors associated 

with the requirement to provide to 

covered borrowers a statement of the 

MAPR is not offset by any financial 

benefit to the borrowers, even though 

borrowers generally do obtain some 

non-quantifiable benefits from receiving 

the statement. Similarly, the Department 

expects that creditors will face 

compliance costs when using the 

Department’s MLA Database to assess 

whether consumer-applicants are 

covered borrowers and maintaining 

records of that information, as provided 

in proposed § 232.5(b), and consumers 

reasonably can be assumed to be 

indifferent to the functions associated 

with conducting covered-borrower 

checks through the MLA Database and 

not receive any readily quantifiable, 

financial benefits thereof. The 

Department believes, as discussed above 

in section III.C., there are benefits to a 

system for conducting a coveredborrower check that minimizes, or 

eliminates, the opportunity for a 

covered borrower to make a false 

statement regarding his or her status 

when applying for consumer credit. 

Likewise, the Department recognizes 

that the proposal could impose certain 

types of costs on covered borrowers, 

including a potential reduction in 

access to available credit. Nevertheless, 

as discussed above in section II.E., the 

majority of Service members have 

access to reasonably priced (as well as 

low-cost) credit, and, as long as they 

wisely use those resources, they are 


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170For the sake of brevity and clarity, the 

estimated savings to creditors, as discussed below, 

are not included in the computations represented 

in Figure 1. 

171See OMB Circular A–4 (Regulatory Planning 

and Review), at 31–34 (recommending, for 

regulatory analysis, providing estimates of net 

benefits using discount rates of both 3 percent and 

7 percent), available at http://www.whitehouse.gov/ 

sites/default/files/omb/assets/omb/circulars/a004/

a-4.pdf. 

172The forms of ‘‘consumer credit’’ that may be 

covered by the MLA are subject to certain 

exceptions, notably for a residential mortgage. 10 

U.S.C. 987(i)(6)(A) and 987(i)(6)(B). 

173See 12 CFR 1026.1(c)(1)(iii) (limiting the 

coverage of the regulation, in relevant part, to credit 

that is subject to a finance charge or is payable by 

a written agreement in more than four installments). 

likely not to need high-cost loans to 

fulfill their credit needs. 

The scenario analysis that examines 

the potential benefit of the Department’s 

proposal are the savings attributable to 

lower recruiting and training expenses 

associated with the reduction in 

involuntary separation of Service 

members due to financial distress. Each 

separation of a Service member is 

estimated to cost the Department 

$57,333, and the Department estimates 

that each year approximately 4,703 to 

7,957 Service members are involuntarily 

separated due to financial distress. If the 

Department’s proposed regulation could 

reduce the annual number of 

involuntary separations due to financial 

distress from between five to 30 percent, 

the savings to the Department are 

expected to be in the range of 

approximately $13.47 million to 

$136.85 million each year. 

Figure 1 (which also appears in the 

Executive Summary, in section I.C.) 

provides a summary of the anticipated 

benefits and (costs) of the Department’s 

proposed regulation,170 and the 

estimates are provided for the first year, 

on an annual (ongoing basis), and for a 

ten-year period, applying discount rates 

of both 7 percent and 3 percent, 

consistent with guidance issued by 

OMB.171 Nevertheless, the Department 

has assessed the amounts of value that 

potentially may be involved in the 

transfer payments due to the interestrate limit, and those amounts are 

summarized in Figure 2. 

FIGURE 1—SUMMARY OF ESTIMATED EFFECTS OF PROPOSED RULE

[2013 dollars in millions] 

First year Annual, 

ongoing 

PV 10-year, 

7% discount 

rate 

PV 10-year, 

3% discount 

rate 

Sensitivity Analysis: 

Benefits to the Department ........................... Low ............................... $0 $13 $96 $128 

High .............................. 0 137 970 1,304 

Primary Analysis: 

Costs to Creditors of Compliance ................. ....................................... 96 20 144 194 

Primary Analysis: 

Transfer Payments ........................................ Low ............................... NA 101 717 958 

High .............................. NA 120 856 1,139 

FIGURE 2—ESTIMATED VALUE OF TRANSFER PAYMENTS UNDER THE PROPOSED RULE

[2013 dollars in millions] 

Annual, 

ongoing 

10-year, 7% 

discount rate 

10-year, 3% 

discount rate 

Transfer Payments: 

Low ....................................................................................................................................... $101 $716 $957 

High ...................................................................................................................................... 120 856 1,139 

2. Need for the Regulation and 

Consideration of Alternatives 

The Department is proposing to 

amend its existing regulation primarily 

for the purpose of extending the 

protections of 10 U.S.C. 987 to a broader 

range of closed-end and open-end credit 

products, rather than the limited credit 

products currently defined as consumer 

credit. More specifically, as discussed 

above, the Department proposes to 

amend its regulation so that, in general, 

consumer credit covered under the 

MLA 172 would be defined consistently 

with credit that for decades has been 

subject to the protections under TILA, 

namely: credit offered or extended to a 

covered borrower primarily for 

personal, family, or household 

purposes, and that is (i) subject to a 

finance charge or (ii) payable by a 

written agreement in more than four 

installments.173

In developing this proposal, the 

Department has consulted with the 

Federal Agencies (pursuant to 10 U.S.C. 

987(h)(3)), and in the course of that 

process has considered a range of 

alternatives to the provisions contained 

in this proposal. For example, as 

discussed above in section III.B., in 

developing the provisions for the 

conditional exclusion for credit card 

accounts, the Department has 

considered proposing a complete 

exemption from the definition of 

‘‘consumer credit’’ for credit extended 

to a covered borrower under a credit 

card account. The Department similarly 

has considered whether exclusions from 

the MAPR for certain types of fees, such 

as an application fee or participation 

fee, should be proposed for credit card 

accounts in order to preserve current 

levels of access to those products for 

Service members and their dependents. 

The Department also has considered 

alternative mechanisms and thresholds 

for the provision in proposed 

§ 232.4(d)(3)(ii) would set a threshold of 

$3 billion in outstanding credit card 

loans on U.S. credit card accounts held 

by a credit card issuer in order for that 

issuer’s fees to be eligible for inclusion 

in an average calculated for the 

purposes of compliance with the 

‘‘reasonable’’ condition of § 232.4(d)(1). 

Similarly, in developing the 

provisions relating to a creditor’s 

assessment of a covered borrower, the 

Department has considered alternatives 

to the creditor’s use of the MLA 

Database in order to obtain the benefit 


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174See section III.C., question 13. 

175See section III.C., question 11. 

176See, e.g., section III.B., question 10. 

177For example, the Department believes that the 

costs associated with the prohibition against 

requiring a covered borrower to waive his or her 

rights under any otherwise applicable provision of 

law (as provided in proposed § 232.8(b)) is not 

material to this regulatory impact assessment 

because the potential costs of this prohibition are 

negligible. Moreover, there is no reasonable basis 

for the Department to estimate the potential costs 

associated with this prohibition, in part because the 

Department believes so few—if any—creditors 

currently require, as part of their standard 

agreements in credit products, a consumer to waive 

rights under applicable provisions of State or 

Federal law. 

178 In considering the costs associated with 

updating computer programs, the Department relies 

on analysis from the Government Accountability 

Office (GAO) examining the costs of implementing 

changes to minimum payment disclosures for credit 

card accounts. There, GAO found that credit card 

issuers were unable to provide precise estimates of, 

among others, the cost of computer programming to 

provide the revised disclosures. GAO found that 

estimates of the computer programming cost varied 

widely, from $5,000 to $1 million. For large issuers, 

GAO concluded that these one-time costs would be 

very small when compared with large issuers’ net 

income. For smaller issuers, GAO concluded that 

work to implement changes would be done largely 

by third-party processors, accustomed to 

reprogramming required to managing cardholder 

data and processing billing statements. U.S. Gov’t 

Accountability Office, GAO–06–434, Credit Cards: 

Customized Minimum Payment Disclosures Would 

Provide More Information to Consumers, but Impact 

Could Vary (April 2006). 

of a safe harbor under proposed 

§ 232.5(b)(2). In this regard, the 

Department has considered whether to 

retain a safe harbor for a creditor’s use 

of the covered borrower identification 

statement, and explicitly seeks comment 

on that alternative.174 Likewise, the 

Department has considered alternative 

provisions relating to a creditor’s use of 

the MLA Database via commercial 

information-services providers, such as 

consumer reporting agencies, and seeks 

comment on that approach.175

In light of the data and other 

information available to the Department 

at this time, the Department has 

considered alternative approaches to the 

provisions of the proposal and, as 

appropriate, explicitly solicits 

comments on the alternatives the 

Department should consider.176

After observing the effects of its 

existing regulation during the past six 

years and based on its review of 

information provided by a wide variety 

of persons and entities, the Department 

believes that this proposal to amend the 

regulation is appropriate in order to 

address a wider range of credit products 

that currently fall outside the scope of 

the MLA, streamline the information 

that a creditor would be required to 

provide to a covered borrower when 

consummating a transaction involving 

consumer credit, and provide a more 

straightforward mechanism for a 

creditor to conclusively assess whether 

a consumer-applicant is a covered 

borrower. In this regard, as discussed 

above in section III.C., the Department 

is aware of misuses of the covered 

borrower identification statement 

whereby a Service member (or covered 

dependent) falsely declares that he or 

she is not a covered borrower. The 

Department believes that, if a creditor 

unilaterally conducts a coveredborrower check by using the MLA 

Database, a Service member or his or her 

dependent would be relieved from 

making any statement regarding his or 

her status as a covered borrower. 

3. Estimate of Anticipated Costs 

Associated With Other MLA Conditions 

The other MLA conditions that would 

apply to creditors who offer consumer 

credit products that would be subject to 

the proposed regulation might present 

several types of compliance costs to 

those creditors. For example, if a 

creditor extends consumer credit to a 

covered borrower only in the form of a 

credit card product (and who thus 

currently is not subject to the MLA), the 

creditor might encounter various costs 

associated with complying with 

requirements for: adjustment of 

computer systems and software to 

provide for calculation of the MAPR 

(pursuant to § 232.4(b)); the use of the 

MLA Database and the retention of 

records relating to its covered-borrower 

determinations (under proposed 

§ 232.5(b)); the mandatory loan 

disclosures (under proposed § 232.6); 

and each of the statutory limitations 

applicable to consumer credit (under 

proposed § 232.8). 

The Department believes that some of 

the compliance costs due to the other 

MLA conditions are not material to the 

quantifiable aspects of this regulatory 

impact assessment because some costs 

are minimal (relative to the creditor’s 

other compliance costs or the creditor’s 

overall costs of operations when 

providing consumer credit) or not 

amenable to measurement.177

Accordingly, for the purposes of this 

regulatory impact assessment, the 

Department has focused its quantitative 

assessment of costs on two areas that, 

based on the Department’s experience, 

are reasonably likely to impose costs: 

First, the disclosures required by the 

MLA to be provided by a creditor to a 

covered borrower (under proposed 

§ 232.6); and, second, the use of the 

MLA Database and the retention of 

records for covered-borrower 

determinations (under proposed 

§ 232.5(b)). In addition, for the purposes 

of this regulatory impact assessment, the 

Department addresses the potential 

costs associated with the prohibition 

against requiring a covered borrower to 

submit to arbitration in the case of a 

dispute involving an extension of 

consumer credit (under proposed 

§ 232.8(c)). 

The Department recognizes that this 

assessment does not capture all possible 

compliance costs associated with the 

proposed regulation. Indeed, the 

Department anticipates that a creditor 

who chooses to extend credit with a cost 

that may exceed the interest-rate limit or 

implicate the limitations in proposed 

§ 232.8 might need to adjust its 

computer and software systems to 

calculate the MAPR, develop new 

policies and procedures, and train staff 

on new procedures for identifying 

covered borrowers and taking advantage 

of the proposed safe harbor under 

proposed § 232.5. Further, creditors 

likely would select different techniques 

for meeting compliance obligations 

under the proposal. The cost burden on 

each creditor could vary depending on 

the business decisions made by that 

creditor. Acknowledging the limits of 

the assessment and pursuant to the 

directive of EO 12866 and EO 13563, the 

Department has sought to quantify the 

important potential costs of the proposal 

and to identify important nonquantified potential costs and 

benefits.178

As the Department assesses whether 

to amend its regulation, as proposed, the 

Department will further consider the 

potential benefits and costs of extending 

the protections of the MLA to a broader 

range of closed-end and open-end credit 

products. There are several areas where 

additional information could assist the 

Department in better estimating the 

potential benefits, costs, and effects of 

amending its regulation. The 

Department requests interested parties 

to provide specific data relating to the 

benefits and costs of amending the 

regulation, as proposed, including costs 

to implement measures to adjust 

computer systems and to train 

personnel. The Department seeks 

comments on whether all anticipated 

costs have been adequately captured in 

the analysis. Please provide information 

on the type of costs and the magnitude 

of costs by providing relevant data and 

studies. 

Disclosures. Under the Department’s 

existing regulation (‘‘status quo 

alternative’’), a creditor who extends to 

a covered borrower one or more of the 

three consumer credit products covered 

by the regulation must ‘‘clearly and 

conspicuously’’ disclose: (i) A 


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179To estimate the number of consumer credit 

transactions each year, the Department relies on 

data from the Federal Reserve Bank of New York’s 

Consumer Credit Panel. See Federal Reserve Bank 

of New York, Quarterly Report on Household Debt 

and Credit (August 2013). For the six months prior 

to the second quarter of 2013, there were 

approximately 159 million credit inquiries. The 

Department assumes that 60 percent of these 

inquiries were for credit accounts that would be 

consumer credit under proposed § 232.3(f). This 

estimate does not differentiate between credit 

applications and credit accounts opened. If most 

creditors only supply the required information as 

part of their account agreements which are 

provided at the time of account opening, then the 

overall number of transactions involving the 

provision of that information would be lower than 

is estimated here. 

180The Department bases this estimate on 

relevant numbers of establishments published by 

the Bureau of Labor Statistics, the FDIC, and NCUA. 

See BLS, Quarterly Census of Employment and 

Wages, NAICS 522291 Consumer Lending, NAICS 

522298 All Other Nondepository Credit 

Intermediation (2012) (the annual average number 

of establishments for consumer lending is 14,544; 

the annual average number of all other 

nondepository establishments for credit 

intermediation is 8,963); FDIC Institution Directory, 

available at http://www2.fdic.gov/IDASP/ (reporting 

6,812 insured institutions) (accessed January 2014); 

and NCUA Annual Report 145 (2012), available at 

http://www.ncua.gov/Legal/Documents/Reports/ 

AR2012.pdf (reporting 9,369 credit unions) 

(accessed January 2014). 

181The Department estimates that set-up for the 

statement of the MAPR will take 20 hours, and that 

staff time for the set-up of the proposed disclosure 

will be 50 percent data entry and information 

processing workers, 40 percent supervisors of office 

and administrative support workers, and 10 percent 

legal counsel. U.S. Dep’t of Labor, Bureau of Labor 

and Statistics, Occupational Employment and 

Wages 2012, Table 1 (mean hourly wage for data 

entry and information processing workers is $15.11; 

mean hourly wage for supervisors of office and 

administrative support workers is $25.40; mean 

hourly wage for legal counsel is $62.93), available 

at http://www.bls.gov/news.release/ocwage.t01.htm. 

The Department calculates the total estimated cost 

by multiplying the mean hourly wage by the 

portion of time for each classification of worker 

expected to be involved in modifying the 

documents. 

182 In this regard, the Department has estimated 

the potential costs only for in-person transactions. 

These figures do not relate to applications involving 

the use of the creditor-supplied telephone number 

for the oral delivery of the required information. 

183The Department reaches this estimate by 

computing the cost of the additional transaction 

time, calculated by multiplying the number of 

transactions (4 million) by the mean hourly wage 

for financial tellers ($12.40) and the portion of hour 

that the disclosure will take in a typical transaction 

(1/72nd of an hour). U.S. Dep’t of Labor, Bureau of 

Labor and Statistics, Occupational Employment and 

Wage Table 1 (May 2012) (mean hourly wage for 

financial tellers is $12.40). 

184The Department relies on estimates of paper 

and printing costs recently published by the 

Department of Labor. Reasonable Contract or 

Arrangement Under Section 408(b)(2)—Fee 

Disclosure,77 FR 5632, 5654 (Feb. 3, 2012). 

185The Department reaches this estimate by 

computing the cost of the additional printing and 

paper for the disclosure, calculated by multiplying 

the number of transactions (191 million) by the cost 

Continued 

numerical value for the MAPR 

applicable to the extension of credit, 

including the total dollar amount of all 

charges included in the MAPR; (ii) any 

disclosures required by Regulation Z; 

(iii) a clear description of the payment 

obligation (which may be satisfied by a 

payment schedule provided pursuant to 

Regulation Z); and (iv) a Statement of 

Federal Protections. A creditor must 

provide the information orally and in 

writing prior to consummation of the 

credit transactions. For mail and 

internet transactions, the creditor may 

provide, with the written disclosures, a 

toll-free telephone number that the 

borrower may use to obtain the oral 

disclosures. 

Section 232.6 of the proposed rule 

would amend the provisions relating to 

the information required by the MLA to 

simplify the information that a creditor 

must provide to a covered borrower 

when extending consumer credit. The 

proposal would relieve a creditor of the 

obligation to disclose ‘‘clearly and 

conspicuously’’ the information 

required by the MLA. Additionally, the 

Department would eliminate the 

requirement that a creditor disclose a 

numerical value for the MAPR or ‘‘the 

total dollar amount of all charges,’’ and 

instead would require a creditor to 

provide a description of the charges that 

the creditor may impose. Thus, in 

general, the proposal would permit a 

creditor to streamline compliance with 

the disclosure requirements under 10 

U.S.C. 987(c) by providing to a covered 

borrower the same information the 

creditor must provide to a consumer 

under Regulation Z, plus a statement of 

the MAPR. In order to facilitate 

compliance, the proposed regulation 

provides a model statement that a 

creditor could use. Consistent with the 

Department’s interpretation of its 

existing regulation, the proposal 

expressly provides that the statement of 

the MAPR would not be required in any 

advertisement relating to consumer 

credit. 

The Department estimates that there 

are approximately 191 million 

transactions each year in which 

creditors would provide the required 

information,179 generally included as 

part of their standard credit agreements. 

The Department assumes that all 

creditors, other than creditors who offer 

only residential mortgage loans or loans 

expressly to finance the purchase of 

personal property (neither of which 

loans is consumer credit), will provide 

these disclosures, and believes that, 

based on these assumptions, 

approximately 40,000 creditors would 

be subject to the proposed regulation.180

The Department seeks comments on 

whether the estimate of 40,000 creditors 

is reasonable. Please provide data and 

studies that support the comment. 

(a) Statement of the MAPR 

For creditors who currently provide 

disclosures to covered borrowers (under 

the status quo alternative), the proposed 

rule is expected to reduce some of their 

compliance costs by eliminating the 

requirement to disclose a numerical 

value for the MAPR. The Department 

estimates that eliminating the 

requirement under the status quo to 

disclose a numerical value for the 

MAPR would reduce the compliance 

costs for creditors who currently offer 

forms of consumer credit by $71,900 per 

year. Over ten years, the Department 

estimates that the total savings to this 

class of creditors would be between 

$0.58 million (at a 7 percent discount 

rate) and $0.69 million (at a 3 percent 

discount rate). 

The proposal to require the provision 

of a statement of the MAPR, which may 

be satisfied through the use of a model 

statement, is anticipated to cost all 

creditors approximately $19 million 

during the first year, principally due to 

the costs of modifying the documents 

given to covered borrowers (such as a 

contract for consumer credit).181 The 

Department estimates that, on an 

ongoing basis, providing the statement 

of the MAPR would add approximately 

50 seconds to each transaction when 

provided orally and require one-quarter 

of a printed page when included in 

standard account disclosures. To 

estimate the cost of providing the 

statement of the MAPR orally, the 

Department assumes that this statement 

is provided by a creditor’s teller or sales 

person, provided only to covered 

borrowers, and that there are 

approximately 2 million covered 

borrowers, each opening two credit 

accounts per year.182 The Department 

estimates that the ongoing cost to 

creditors for the additional transaction 

time in orally providing the statement of 

MAPR will be approximately $0.69 

million per year.183 Over ten years, the 

total costs to creditors of providing a 

statement of the MAPR orally during inperson transactions would be between 

$4.88 million (at a 7 percent discount 

rate) and $6.57 million (at a 3 percent 

discount rate). 

The Department further assumes that 

creditors will update standard account 

disclosures for all consumer credit 

accounts and that the printing and 

paper costs are five cents per page.184

The Department estimates that the 

ongoing costs for additional printing 

would be approximately $2.39 million 

per year.185 Over ten years, the total 


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per page ($.05) and the portion of the page used for 

the disclosure (0.25 page). 

186The Department estimates that set-up for the 

Statement will take 20 hours and that staff time for 

the set-up of proposed disclosures will be 50 

percent data entry and information processing 

workers, 40 percent supervisors of office and 

administrative support workers, and 10 percent 

legal counsel. U.S. Dep’t of Labor, Bureau of Labor 

and Statistics, Occupational Employment and 

Wages Table 1 (2012) (mean hourly wage for data 

entry and information processing workers is $15.11; 

mean hourly wage for supervisors of office and 

administrative support workers is $25.40; mean 

hourly wage for legal counsel is $62.93). http:// 

www.bls.gov/news.release/ocwage.t01.htm. The 

Department calculates the total estimated cost by 

multiplying the mean hourly wage by the portion 

of time for each classification of worker expected 

to be involved in modifying the documents. 

187The Department reaches this estimate by 

computing the cost of the additional transaction 

time, calculated by multiplying the number of 

transactions (4 million) by the mean hourly wage 

for financial tellers ($12.40) and the portion of hour 

that the disclosure will take in a typical transaction 

(1/72nd of an hour). U.S. Dep’t of Labor, Bureau of 

Labor and Statistics, Occupational Employment and 

Wage Table 1 (May 2012) (mean hourly wage for 

financial tellers is $12.40). 

188U.S. Dep’t of Labor, Bureau of Labor and 

Statistics, Occupational Employment and Wages 

Table 1 (May 2012). See also Reasonable Contract 

or Arrangement Under Section 408(b)(2)—Fee 

Disclosure, 77 FR 5632, 5654 (Feb. 3, 2012) 

(estimating costs of printing and paper). 

189The Department reaches this estimate by 

computing the cost of the additional printing and 

paper for the disclosure, calculated by multiplying 

the number of transactions (191 million) by the cost 

per page ($.05) and the portion of the page used for 

the disclosure (0.25 page). 

costs to creditors of providing a printed 

statement of the MAPR would be 

between $16.93 million (at a 7 percent 

discount rate) and $22.75 million (at a 

3 percent discount rate). 

Taking the additional transaction time 

for oral disclosure and the additional 

printing and paper expenses for written 

disclosure together, the Department 

estimates that the total costs to all 

creditors of providing the statement of 

the MAPR would be $3.08 million each 

year. Over ten years, the Department 

estimates that the total costs to all 

creditors of providing the statement of 

the MAPR would be between $21.81 

million (at a 7 percent discount rate) 

and $29.32 million (at a 3 percent 

discount rate). 

Additionally, creditors may 

experience some increase in call volume 

and costs associated with providing oral 

disclosures if borrowers engage in 

consumer credit transactions by mail, 

internet, or at the point of sale in 

association with the sale of a 

nonfinancial product or service. The 

Department seeks comment, as well as 

data (as may be appropriate), on its 

supposition regarding the costs 

associated with these sales channels. 

Due to the lack of readily available data, 

the Department has not quantified the 

potential costs of any increase in this 

call volume; however, the Department 

has sought to streamline and minimize 

the compliance burden associated with 

all disclosures, including the 

requirement to orally provide the 

required information. Proposed 

§ 232.6(d)(2) reflects the Department’s 

effort to minimize the burden on 

creditors while retaining the structure 

and intent of the current regulation. The 

Department seeks comment on the 

assumptions invoked in this section. 

Please provide comment on the 

reasonableness of the assumptions and 

likelihood of the associated costs. Please 

provide data and studies that support 

the comment. 

(b) Statement of Federal Protections 

Under the proposal, like the status 

quo alternative, a creditor still must 

provide to a covered borrower the 

Statement of Federal Protections. 

However, because the proposal would 

apply the protections of 10 U.S.C. 987 

to a broader scope of credit transactions, 

an additional 20,000 creditors would 

provide the Statement of Federal 

Protections, as required by proposed 

§ 232.6(a)(4). The Department estimates 

that incorporating the 111 words in the 

required Statement of Federal 

Protections into existing disclosures or 

contract documents would cost newly 

obligated creditors approximately $9.60 

million in set-up costs during the first 

year.186

On an ongoing basis, the Department 

estimates that providing the Statement 

of Federal Protections would add 

approximately 50 seconds to each 

transaction when the disclosure is 

provided orally and require one-quarter 

of a printed page when included in 

standard account disclosures. To 

estimate the cost of orally providing the 

Statement of Federal Protections, the 

Department assumes that this statement 

is provided by a creditor’s teller or sales 

person, provided only to covered 

borrowers, and that there are 

approximately 2 million covered 

borrowers, each opening two credit 

accounts per year. The Department 

estimates that the cost to creditors of 

providing the Statement of Federal 

Protections orally will be approximately 

$0.69 million per year.187 Over ten 

years, the total costs to creditors of 

providing the Statement of Federal 

Protections orally during in-person 

transactions would be between $4.88 

million (at a 7 percent discount rate) 

and $6.57 million (at a 3 percent 

discount rate). 

The Department further assumes that 

creditors will update standard account 

disclosures for all credit accounts and 

that the printing and paper costs are five 

cents per page.188 The Department 

estimates that the ongoing costs for 

additional printing would be 

approximately $2.39 million per year.189

Over ten years, the total costs to 

creditors of providing the Statement of 

Federal Protections in account 

agreements would be between $16.93 

million (at a 7 percent discount rate) 

and $22.75 million (at a 3 percent 

discount rate). 

Taking the additional transaction time 

for oral disclosure and the additional 

printing and paper expenses for written 

disclosure together, the Department 

estimates that the total costs to all 

creditors of providing the Statement of 

Federal Protections would be $3.08 

million each year. Over ten years, the 

Department estimates that the total costs 

to all creditors of providing the 

Statement of Federal Protections would 

be between $21.81 million (at a 7 

percent discount rate) and $29.32 

million (at a 3 percent discount rate). 

Because some creditors obligated under 

the current rule may provide the 

Statement of Federal Protections to 

covered borrowers, the actual additional 

cost of the proposal over the status quo 

alternative could be lower than the 

Department’s estimate. 

Additionally, as with the statement of 

the MAPR, the Department realizes that 

creditors might experience some 

increase in call volume and costs 

associated with providing oral 

disclosures if borrowers engage in 

consumer credit transactions by mail, 

internet, or at the point of sale in 

association with the sale of a 

nonfinancial product or service. The 

Department has not quantified the 

potential costs of any increase in this 

call volume; however, the Department 

has sought to streamline and minimize 

the compliance burden associated with 

all disclosures, including the MLA’s 

oral disclosure requirement. Proposed 

§ 232.6(d)(2) reflects the Department’s 

effort to minimize the burden on 

creditors while retaining the structure 

and intent of the current regulation. 

Figure 3a provides a summary of the 

anticipated benefits and (costs) 

associated with the disclosures under 

the Department’s proposed regulation. 


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Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 58629 

190The Department estimates that staff time to set 

up access to the MLA Database and the processes 

to record and retain information will be 50 percent 

data entry and information processing workers, 40 

percent supervisors of office and administrative 

support workers, and 10 percent legal counsel. U.S. 

Dep’t of Labor, Bureau of Labor and Statistics, 

Occupational Employment and Wages Table 1 

(2012) (mean hourly wage for data entry and 

information processing workers is $15.11; mean 

hourly wage for supervisors of office and 

administrative support workers is $25.40; mean 

hourly wage for legal counsel is $62.93). 

191Federal Deposit Insurance Corp., Addendum 

to the FDIC National Survey of Unbanked and 

Underbanked Households (June 2013). 

192American Association of Responsible Auto 

Lenders (AARAL), Comment letter to Consumer 

Financial Protection Bureau (CFPB Docket No. 

CFPB–HQ–2011–2) (2011). 

FIGURE 3A—ESTIMATED BENEFITS AND COSTS OF DISCLOSURES UNDER THE PROPOSED RULE

[2013 dollars in millions] 

First year Annual, 

ongoing 

PV 10-year, 

7% discount 

rate 

PV 10-year, 

3% discount 

rate 

Benefits of eliminating requirement to disclose numerical MAPR .................. $0.00 $0.07 $0.58 $0.69 

Set up costs of Proposed Statement of the MAPR ......................................... 19 n/a n/a n/a 

Ongoing costs of Proposed Statement of the MAPR (oral and printed) ......... 0.00 3 22 29 

Set up costs of Statement of Federal Protections (additional creditors) ........ 10 n/a n/a n/a 

Ongoing costs of Statement of Federal Protections (oral and printed) .......... 0.00 3 22 29 

Total Net Costs ......................................................................................... 29 6 43 58 

Department seeks comment on the 

assumptions invoked in this section. 

Please provide comment on the 

reasonableness of these assumptions 

and likelihood of the associated costs. 

Please provide data and studies that 

support the comment. 

Identification of Covered Borrowers. 

Under the status quo, the Department 

believes that a creditor who offers a 

covered payday loan, vehicle title loan, 

or refund anticipation loan typically 

assesses the status of a consumerapplicant by providing a selfcertification form which is completed 

by the applicant, as provided in § 232.5. 

The Department proposes to modify 

the process for conducting a coveredborrower check so that a creditor may 

unilaterally assess the status of a 

consumer-applicant, rather than relying 

on the applicant to complete a selfdeclaration form. Proposed § 232.5(b), if 

adopted, would allow a creditor to 

access the MLA Database to assess the 

status of a consumer-applicant for 

consumer credit, and would provide a 

safe harbor from liability under the 

MLA for a creditor who uses the MLA 

Database (except when a creditor has 

actual knowledge about the status of the 

consumer-applicant), finds that the 

consumer is not a covered borrower, 

and maintains a record of the 

information obtained from the database. 

The Department assumes that all 

creditors, other than creditors who offer 

only residential mortgage loans or loans 

expressly to finance the purchase of 

personal property (neither of which 

loans is consumer credit), will establish 

processes for querying the MLA 

Database and retaining records of 

covered-borrower checks. As described 

above, the Department believes that, 

based on these assumptions, 

approximately 40,000 creditors would 

be subject to the proposed regulation. 

The Department believes that setting up 

the process to use the MLA Database 

and retain records of queries will take 

each creditor 70 hours of labor time. 

Based on these assumptions, the 

Department estimates that the total costs 

relating to setting up the processes to 

use the MLA Database and take 

advantage of the safe harbor in proposed 

§ 232.5(b) would be $67.22 million.190

The Department has observed that, in 

general, creditors who currently offer 

consumer credit products, as defined by 

the Department’s existing regulation, 

require all consumer-applicants to 

complete the self-declaration form. For 

the purposes of this analysis, the 

Department assumes that a creditor 

requests the consumer-applicant to 

complete the self-declaration form only 

once. For a creditor who currently offers 

a form of consumer credit, as defined by 

the Department’s existing rule, replacing 

the self-declaration form with a process 

to use the MLA Database is estimated to 

result in a savings from transaction 

time, printing and paper costs, as well 

as a reduction in legal risks. Further, the 

Department assumes that creditors 

choosing to avail themselves of the MLA 

Database and the safe harbor in 

proposed § 232.5(b) will retain a record 

of the result of the database query in 

electronic form. 

According to the FDIC, approximately 

2 million households report using a 

payday loan, and 1.45 million 

households report using a refund 

anticipation loan in the past year.191 In 

a comment letter submitted to the 

Bureau, the auto title lending industry 

association reports having 1 million 

customers.192 The Department assumes 

that there is one transaction per 

household, and further assumes that 

processing each self-certification form 

costs five cents (conservatively 

assuming only the costs per page for 

printing and paper). Given these 

assumptions of volume and cost—4.45 

million transactions involving a printed 

self-declaration form—the Department 

estimates that for those creditors who 

currently offer consumer credit 

products, the savings on printing and 

paper will be $222,500 per year; over 

ten years, the Department estimates a 

savings of between $1.58 million (at a 7 

percent discount rate) and $2.12 million 

(at a 3 percent discount rate). The 

Department has not quantified the 

expected savings for creditors with 

respect to the potential reduction in 

transaction time or legal risk. 

The Department expects that 

proposed § 232.5(b), if adopted, would 

prompt all creditors who offer consumer 

credit with an MAPR of more than 36 

percent (which would include some 

creditors who offer credit products with 

credit insurance premiums or fees for 

credit-related ancillary products sold in 

connection with the consumer credit) to 

assess the status of consumer-applicants 

as potential covered borrowers. 

Depository institutions or credit unions 

that offer open-end lines of credit, such 

as deposit advance loans, might choose 

to use the MLA Database before offering 

or extending those types of loans, and 

thereby take advantage of the safe 

harbor in the proposed § 232.5(b), to 

identify potential covered borrowers 

within their respective account 

portfolios. In addition, other creditors 

may choose to query the database, 

regardless of the terms of their credit 

products, particularly through batch 

processing of their customer accounts. 

The Department estimates that of the 

estimated 191 million covered credit 


tkelley on DSK3SPTVN1PROD with PROPOSALS6
58630 Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 

193The Department estimates 191 million relying 

on data from the Federal Reserve Bank of New 

York’s Consumer Credit Panel. See, Federal Reserve 

Bank of New Year, Quarterly Report on Household 

Debt and Credit (August 2013). For the six months 

prior to the second quarter of 2013, there were 

about 159 million credit inquiries. The Department 

assumes that 60 percent of these inquiries were for 

credit accounts that would be consumer credit 

under proposed § 232.3(f). 

194The Department calculates the estimated cost 

by multiplying the expected number of transactions 

involving a covered borrower check (70 million) by 

the mean hourly wage for financial tellers ($12.40) 

and the additional transaction time expected 

(1/60th of an hour). 

195 In considering the costs associated with 

updating computer programs, the Department relies 

on analysis from GAO examining the costs of 

implementing changes to minimum payment 

disclosures for credit card accounts. There, GAO 

found that credit card issuers were unable to 

provide precise estimates of, among others, the cost 

of computer programming to provide the revised 

disclosures. GAO found that estimates of the 

computer programming cost varied widely, from 

$5,000 to $1 million. For large issuers, GAO 

concluded that these one-time costs would be very 

small when compared with large issuers’ net 

income. For smaller issuers, GAO concluded that 

work to implement changes would be done largely 

by third-party processors, accustomed to 

reprogramming required to managing cardholder 

data and processing billing statements. U.S. Gov’t 

Accountability Office, GAO–06–434, Credit Cards: 

Customized Minimum Payment Disclosures Would 

Provide More Information to Consumers, but Impact 

Could Vary (April 2006). 

196 10 U.S.C. 987(e)(3). 

applications each year,193 there will be 

approximately 70 million applications 

when creditors choose to query the 

MLA Database as a single-record check. 

For each of these single-record checks, 

the inquiry and record retention is 

expected to add approximately 60 

seconds to each new consumer credit 

transaction. The Department estimates 

that the total cost to creditors for using 

the database and retaining records 

relating to consumer-applicants would 

be approximately $14.47 million per 

year; 194 over ten years, the total cost of 

using the MLA Database would be 

between $102.56 million (at a 7 percent 

discount rate) and $137.87 million (at a 

3 percent discount rate). 

Because modern credit applications, 

whether conducted online or in person, 

involve highly automated systems for 

underwriting, the Department expects 

that many creditors who issue credit 

cards and other creditors will choose to 

develop systems that make the marginal 

increase in time for querying the MLA 

Database negligible. The Department has 

not sought to estimate the potential 

costs associated with computer 

programming or including a coveredborrower check in automated 

underwriting.195

Figure 3b provides a summary of the 

anticipated benefits and (costs) 

associated with the covered-borrower 

checks under the Department’s 

proposed regulation. 

FIGURE 3B—ESTIMATED BENEFITS AND COSTS OF COVERED-BORROWER CHECKS UNDER THE PROPOSED RULE

[2013 dollars in millions] 

First year Annual 

PV 10-year, 

7% discount 

rate 

PV 10-year, 

3% discount 

rate 

Benefits of Eliminating Printing and Paper Costs for Self-Certification .......... $0.00 $0.22 $2 $2 

Set-up Costs to Use MLA Database ............................................................... 67 n/a n/a n/a 

Covered-Borrower Checks .............................................................................. 0.00 14 103 138 

Total .......................................................................................................... 67 14 101 136 

Department seeks comment on the 

assumptions invoked in this section. 

Please provide comment on the 

reasonableness of these assumptions 

and the likelihood of the associated 

costs. Please provide data and studies 

that support the comment. 

Prohibition on Requiring Arbitration. 

The MLA prohibits a creditor from 

‘‘requir[ing] a covered borrower to 

submit to arbitration or impos[ing] 

onerous legal notice provisions in the 

case of a dispute’’ relating to an 

extension of consumer credit,196 and 

this restriction is reflected in proposed 

§ 232.8(c). Under the status quo, the 

prohibition against requiring a covered 

borrower to submit to arbitration applies 

only to certain payday loans, vehicle 

title loans, and refund anticipation 

loans. If the Department adopts the 

regulation as proposed, then the 

prohibition against requiring arbitration 

(in proposed § 232.8(c)) would apply to 

agreements for a significantly broader 

range of credit products, such as credit 

cards and deposit advance loans. The 

Department recognizes that extending 

the application of the prohibition in 

proposed § 232.8(c) likely would lead to 

costs, primarily as a result of the 

significantly broader range of creditors 

affected by that prohibition. 

Nevertheless, the Department has not 

endeavored to quantify the costs of the 

restriction itself, such as the costs that 

might be associated with making 

modifications to standard agreements or 

potentially increased exposures to 

disputes litigated in courts. 

The Department seeks comment on 

the potential costs to creditors, across a 

variety of contracts implicated by the 

prohibition in proposed § 232.8(c), who 

offer forms of consumer credit that 

could be affected by the prohibition 

against requiring arbitration. 

4. Sensitivity Analysis on Potential 

Benefits 

Each year, thousands of well-trained 

Service members are compelled to leave 

military service because they experience 

financial distress that leads to the 

revocation of their security clearances. 

The Department has direct experience 

with this process of involuntary 

separation, which generally involves a 

Service member becoming overextended in debt—which occurs due to 

a wide range of factors—defaulting on 

one or more credit agreements (either by 

making late payments or by failing to 

make payments), and experiencing a 

deterioration in the credit score or credit 

history prepared by a consumer 

reporting agency for that individual. 

The individual’s deteriorating 

creditworthiness presents an exposure 

to the Department that the individual 

poses a security risk, which ultimately 

warrants separation. 

As discussed in sections II.C and II.D, 

the Department makes a significant 

investment in recruiting, training, and 

progressing each qualified Service 

member. Losing a qualified soldier, 

sailor, airman, or Marine can cause a 

loss of mission capability, and there are 

substantial costs associated with 

replacing that Service member. Even 

though, for the purposes of this 

regulatory impact assessment under EO 

12866 and EO 13563, the most direct 

effect of the interest-rate limit is a 

transfer payment, a secondary—yet no 

less direct—effect is the reduction in the 


tkelley on DSK3SPTVN1PROD with PROPOSALS6
Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 58631 

197Blue Star Families, The 2013 Military Family 

Lifestyle Survey 11 (May 2013). 

198U.S. Gov’t Accountability Office, GAO–11– 

170, Military Personnel: Personnel and Cost Data 

Associated with Implementing DOD’s Homosexual 

Conduct Policy (January 20, 2011) (estimating that 

each separation costs the Department $52,800 in 

2009 dollars). The cost of $57,333 is calculated in 

2013 dollars (through December 2013), using the 

U.S. Dep’t of Labor, Bureau of Labor Statistics, 

Consumer Price Index, All Urban Consumers (CPI– 

U), available at ftp://ftp.bls.gov/pub/

special.requests/cpi/cpiai.txt. 

199U.S. Dep’t of Defense, Report on Predatory 

Lending Practices Directed at Members of the 

Armed Forces and Their Dependents 39 (August 9, 

2006), available at http://www.defense.gov/pubs/

pdfs/Report_to_Congress_final.pdf. 

200Amy Klamper, ‘‘Breakthrough,’’ Navy League 

of the United States (October 2006). 

201U.S. Dep’t of Defense, Report on Predatory 

Lending Practices Directed at Members of the 

Armed Forces and Their Dependents 9 (August 9, 

2006), available at http://www.defense.gov/pubs/

pdfs/Report_to_Congress_final.pdf. 

202Service members also could be separated in a 

number of other ways; for example, this number 

does not attempt to account for separations where 

a Service member is court-marshaled for failure to 

pay debts. 

203Thus, in estimate two, the Department 

computes the total number of separations per year 

as follows: the approximate total number of 

revocations per year [(1,999)/(0.0850)] multiplied 

by 0.80, yields the revocations due to financial 

distress of 18,814; and 25 percent of that figure is 

4,703. 

204See, generally, Scott Carrell & Jonathan 

Zinman, In Harm’s Way? Payday Loan Access and 

Military Personnel Performance (January 2013) 

(estimating a 5 percent increase in negative 

personnel outcomes for Service members with 

access to high-cost payday loans). The Department 

uses this study to estimate a low-end of the possible 

reduction in separations. This estimate likely is less 

reliable than other estimates of separations 

included in this analysis because the study does not 

directly measure the impact of high-cost loans on 

borrower personnel outcomes. 

205See, generally, Department of Navy, Personnel 

Security Appeals Board, CY 2011 Activity Report at 

7 (in 2011, 47 percent of denied appeals of revoked 

security clearances were due to financial problems) 

available at www.ncis.navy.mil/securitypolicy/

PSAB/PSAB%20Activity%20Reports/

CY11%20PSAB%20Activity%20Report.pdf); 

Consumer Federation of America, et al, DOD–2013– 

OS–0133–0030, at 3 (noting that for the Department 

of Navy the portion of denied appeals of revoked 

security clearances due to financial distress 

declined from 57 percent in 2006 to 47 percent in 

2011). The Department uses the percentage of the 

decline (17.5) as a midpoint estimate. 

206See, generally, Jean Ann Fox, The Military 

Lending Act Five Years Later, Consumer Federation 

of America (2012) at 16–17 (for the Department of 

the Navy, overall denied appeals of revoked 

security clearances declined by 30 percent from 

2006 to 2010). 

overall amount of debt owed to creditors 

by covered borrowers. The Department 

believes if the interest-rate limit were to 

apply to a broader range of credit 

products, the overall amount of debt 

owed to creditors would be reduced; as 

a result, regardless of the original 

occasions for incurring debts, Service 

members reasonably may be expected to 

have a lower incidence of financial 

distress, and a correspondingly lower 

incidence of involuntary separation. 

Thus, the Department believes that the 

savings of the Department’s costs 

associated with replacing Service 

members who are involuntarily 

separated constitute benefits for the 

purposes of this regulatory impact 

assessment—entirely independently of 

the transfer payment flowing from the 

interest-rate limit—and are amenable to 

being quantified. More generally, the 

anticipated improvements in military 

readiness and Service-member retention 

lie at the core of 10 U.S.C. 987. 

Military Readiness and Service 

Member Retention. The most 

substantial—as well as meaningfully 

quantifiable—benefit of the 

Department’s proposed regulation, if 

adopted, would be the reduction in 

involuntary separations among Service 

members due to financial distress. The 

Department also anticipates that the 

proposed regulation would entail nonquantifiable benefits, reducing stress for 

Service members or their families, 

which currently affects approximately 

two-thirds of military families who 

report experiencing stress related to 

their financial condition.197

The Department estimates that each 

separation costs the Department 

$57,333.198 The Department estimates 

the potential impact of adopting the 

proposed regulation by using two 

alternative approximations of the 

current number of separations 

attributable to financial distress. 

(a) Estimate One 

For the years 2003 through 2011, 

there was an average of 55,036 

involuntary separations per year. Of 

those involuntary separations that were 

due to legal or standard-of-conduct 

issues—an average of 19,893 per year— 

the Department estimates that 

approximately half are attributable to a 

loss of security clearance, and, of these, 

80 percent are due to financial 

distress.199 Based on this data and these 

assumptions, the Department estimates 

that, going forward, there would be 

approximately 7,957 separations each 

year due to financial distress. 

(b) Estimate Two 

In 2005, there were 1,999 revocations 

of security clearances in the Navy and 

Marine Corps, representing 8.5 percent 

of involuntary separations.200

Approximately 80 percent of the 

revocations of security clearances are 

due to financial distress.201 The 

Department conservatively estimates the 

number of separations due to financial 

distress at 25 percent, rather than 

attempt to identify separations not 

triggered by a loss of security 

clearance.202 Based on this data and 

these assumptions, the Department 

estimates that, going forward, there 

would be approximately 4,703 

separations each year due to financial 

distress.203

The Department estimates that the 10- 

year cost of involuntary separations due 

to financial distress is between $1.912 

billion and $4.348 billion. However, the 

Department believes that these 

calculations significantly underestimate 

the impact of involuntary separations 

due to financial distress on Servicemember retention and military 

readiness, primarily because the loss of 

security clearance is only one way that 

financial distress leads to separation 

from military service. Furthermore, 

involuntary separation is only one of the 

ways to detect the impact of financial 

distress on military readiness; excessive 

debt—which is less manageable at 

higher rates of interest—likewise can 

impair a Service member’s eligibility to 

deploy or to reenlist. 

The Department acknowledges that 

the proposed regulation, if adopted as 

proposed, would not entirely eliminate 

financial distress among Service 

members. However, the Department 

expects that extending the protections of 

10 U.S.C. 987 to a broader range of 

credit products would significantly 

reduce the incidence of derogatory 

items in the credit files of Service 

members (maintained by consumer 

reporting agencies), and thereby 

improve the Service members’ 

respective capacities to manage and pay 

debts. 

The Department estimates that the 

proposal, if adopted, would reduce the 

separations associated with financial 

distress. To assess the anticipated 

savings reasonably attributable to a 

reduction in involuntary separations, 

the Department has used three estimates 

of the possible reduction in involuntary 

separations: 5 percent,204 17.5 

percent,205 and 30 percent.206 The 

Department believes that estimating 

between 5 percent and 30 percent 

reduction in the total number of these 

separations is reasonable in light of the 

conservative assumptions relating to the 

separations due to financial distress. 

The Department seeks comment on the 

reasonableness of these estimates. 

Please provide data and studies that 

support the comment. 

The Department estimates that the 

proposed regulation, if adopted, would 

result in savings from involuntary 

separations due to financial distress of 

between $13.47 million and $136.85 


tkelley on DSK3SPTVN1PROD with PROPOSALS6
58632 Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 

207Scott Carrell & Jonathan Zinman, In Harm’s 

Way? Payday Loan Access and Military Personnel 

Performance (January 2013) at 23, available at 

http://www.econ.ucdavis.edu/faculty/scarrell/ 

payday.pdf (‘‘Overall the results provide 

ammunition for the Pentagon’s concern that payday 

borrowing has adverse effects on military readiness. 

We find that payday loan access produces a 

significant decline in overall job performance (as 

measured by a 3.9% increase in reenlistment 

ineligibility), and a concomitant decline in 

retention. We also find that a measure of severely 

poor readiness (the presence of an Unfavorable 

Information File) increases by 5.3%.’’). 

million per year. Over ten years, the 

proposal would save the Department 

between $95.52 million and $1.304 

billion. Figure 4 provides a summary of 

the anticipated savings that reasonably 

could be attributable to reduction in 

involuntary separations due to financial 

distress. 

FIGURE 4—SCENARIO ANALYSIS OF COSTS SAVINGS FROM REDUCTIONS IN SEPARATIONS

[2013 dollars in millions] 

Annual 10-year, 7% 

discount rate 

10-year, 3% 

discount rate 

Estimate One: 7,957 separations per year 

Separations Reduced by 30% ..................................................................................................... $137 $970 $1,304 

Separations Reduced by 17.5% .................................................................................................. 80 567 763 

Separations Reduced by 5% ....................................................................................................... 23 162 217 

Estimate Two: 4,703 separations per year 

Separations Reduced by 30% ..................................................................................................... 81 574 771 

Separations Reduced by 17.5% .................................................................................................. 47 335 451 

Separations Reduced by 5% ....................................................................................................... 13 96 128 

In addition to reducing the 

quantifiable costs associated with 

separations due to financial distress, the 

Department believes that the proposed 

regulation, if adopted, would reduce 

non-quantifiable costs associated with 

financial strains on Service members. 

High-cost debt can detract from mission 

focus, reduce productivity, and require 

the attention of supervisors and 

commanders. Additionally, if the 

Department’s proposed regulation is 

adopted, the protections afforded to 

covered borrowers under the MLA 

might, over time, improve the 

Department’s capabilities to retain 

Service members. In this regard, one 

study found that access to extremely 

high-cost debt decreases military 

readiness by increasing the presence of 

unfavorable credit information in the 

files of consumer reporting agencies, 

and by producing a significant decline 

in job performance, reducing the overall 

eligibility of Service members for 

reenlistment.207

5. Estimate of Amount of Transfer 

Payments 

The Department believes that the 

interest-rate limit and the corresponding 

provisions governing computation of the 

MAPR could entail some costs, 

particularly for creditors who might 

need to adjust their systems to compute 

the MAPR in accordance with the 

standards of the proposed regulation. 

The Department anticipates that the 

great majority of creditors should be 

able to compute the MAPR for their 

credit products without significantly 

redesigning their computing or 

accounting systems. However, there 

might be a relatively small number of 

creditors who offer credit insurance 

products or credit-related ancillary 

products with loans who might 

encounter costs to adjust their 

computing or accounting systems to 

comply with the new standards, if 

adopted as proposed. For example, 

credit card issuers whose fees fit within 

the bona fide fee safe harbor would not 

be required to calculate an effective APR 

cost element of the MAPR, provided 

that the periodic rate falls below 36 

percent APR. The Department 

anticipates that only a small number of 

creditors would offer credit products 

requiring calculation of an effective APR 

cost element of the MAPR. For this 

limited class of creditors, the 

Department recognizes that adjustments 

to computing or accounting systems 

could entail some costs, however, there 

are no reliable data on how many 

creditors would pursue such product 

offerings nor data that would allow the 

Department to develop a quantifiable 

estimate of the potential costs associated 

with compliance with the interest-rate 

limit and the provisions governing 

computation of the MAPR. Thus, for the 

purposes of this analysis under EO 

12866 and EO 13563, the Department 

has assessed the potential effects of the 

interest-rate limit only in terms of the 

amount of the transfer payments relating 

to certain consumer credit products. 

Even though the interest-rate limit of 

10 U.S.C. 987(b) results in transfer 

payments from various creditors to 

covered borrowers, and thus does not 

affect the benefits-cost analysis under 

EO 12866 and EO 13563, the 

Department has estimated the amounts 

involved in these payments. For the 

purposes of assessing the amounts 

involved in the transfer payments, the 

Department has considered estimates of 

the current cost of credit and usage rates 

for four types of consumer credit, 

namely: (i) Credit card products, (ii) 

payday loans, (iii) auto title loans, and 

(iv) installment loans. 

In the credit card market, the 

Department believes that most creditors 

should be able to comply with the 

limitation on the MAPR by continuing 

to offer credit card products with 

minimal or no alternations to their 

current pricing practices. In this regard, 

few, if any, creditors who offer credit 

card products charge periodic rates that 

exceed the interest-rate limit of 10 

U.S.C. 987(b) and proposed § 232.4(b). 

Taking into account the exclusion for 

bona fide fees under proposed 

§ 232.4(d), the Department expects that 

nearly all of the amount of the transfer 

payments in credit card products will be 

due to revenues that would be foregone 

from credit insurance, debt cancellation, 

and credit-related ancillary products 

sold to covered borrowers. 

The Department estimates the amount 

of the transfer payments by taking the 

difference of the cost of credit for a 

typical credit card with a credit 

insurance or debt cancellation product 

and 36 percent MAPR, less the payout 

rate on a credit insurance or debt 

protection product. To calculate the 

range of possible transfer payments 

associated with credit card products, the 

Department estimates an amount per 

account, and then makes a high- and 

low-end estimate of the number of 

Service members with credit cards who 


tkelley on DSK3SPTVN1PROD with PROPOSALS6
Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 58633 

208Blue Star Families, The 2013 Military Family 

Lifestyle Survey 34 (May 2013). 

209FINRA Investor Education Foundation, 

Financial Capability in the United States, Military 

Survey (October 2010). 

210U.S. Gov’t Accountability Office, GAO–11– 

311, Credit Cards: Consumer Costs for Debt 

Protection Can be Substantial Relative to Benefits 

but Are Not a Focus of Regulatory Oversight 9, 21 

(March 2011). 

211This calculation assumes a beginning balance 

of $5,000 and that the borrower pays only the 

minimum payment, calculated as 4 percent of the 

monthly balance. Under the status quo, the APR is 

28 percent and the debt cancellation is $1.10 per 

$1,000 of outstanding balance, and the sum of 

payments over ten years is $12,696. Under the 

proposal, the APR is 28 percent and the debt 

cancellation is $.67 per $1,000 of outstanding 

balance, and the sum of payments over ten years 

is $11,810. 

212U.S. Gov’t Accountability Office, GAO–11– 

311, Credit Cards: Consumer Costs for Debt 

Protection Can be Substantial Relative to Benefits 

but Are Not a Focus of Regulatory Oversight 7 

(March 2011). 

213The Department calculates the estimated 

transfer amount by multiplying the number of 

active duty service members (1.4 million) by the 

percentage with a credit card account (78 percent), 

the percentage of accounts with costs that might 

exceed the interest rate limit if the borrower 

purchases add-on products (100 percent), the 

percentage of accounts where the borrower actually 

purchases add-on products (7 percent), and the 

amount transferred per card ($886). 

214The Department calculates the estimated 

transfer amount by multiplying the number of 

active duty service members (1.4 million) by the 

percentage with a credit card account (78 percent), 

the percentage of accounts with costs that might 

exceed the interest rate limit if the borrower 

purchases add-on products (44 percent), the 

percentage of accounts where the borrower actually 

purchases add-on products (7 percent), and the 

amount transferred per card ($886). 

215See Department of Defense, Report On 

Predatory Lending Practices Directed at Members of 

the Armed Forces and Their Dependents (August 9, 

2006), available at http://www.defense.gov/pubs/ 

pdfs/Report_to_Congress_final.pdf; Jean Ann Fox, 

The Military Lending Act Five Years Later, 

Consumer Federation of America (2012); U.S. Gov’t 

Accountability Office, GAO–05–349, Military 

Personnel: DOD’s Tools for Curbing the Use and 

Effects of Predatory Lending Not Fully Utilized 

(April 2005); The Pew Charitable Trusts, Payday 

Lending in America: Who Borrowers, Where They 

Borrow, and Why 4 (July 2012). 

216See Department of Defense, Report On 

Predatory Lending Practices Directed at Members of 

the Armed Forces and Their Dependents (August 9, 

2006), available at http://www.defense.gov/pubs/ 

pdfs/Report_to_Congress_final.pdf; Jean Ann Fox, 

The Military Lending Act Five Years Later, 

Consumer Federation of America (2012); Consumer 

Financial Protection Bureau, Payday Loans and 

Deposit Advance Products 8 (April 2013). The 

Department further assumes that borrowers take a 

median of 10 loans per year, those loans are for 

$392 and carry an average 14-day term. See 

Consumer Financial Protection Bureau, Payday 

Loans and Deposit Advance Products (April 2013). 

Some, though not all, transactions involving these 

products are subject to the protections of 10 U.S.C. 

987 under the current rule. See, e.g., section II.A. 

217Consumer Federation of America and Center 

for Responsible Lending, Driven to Disaster: CarTitle Lending and Its Impact on Consumers 3 

(2013); U.S. Gov’t Accountability Office, GAO–05– 

349, Military Personnel: DOD’s Tools for Curbing 

the Use and Effects of Predatory Lending Not Fully 

Utilized (April 2005); Jean Ann Fox, The Military 

Lending Act Five Years Later, Consumer Federation 

of America (2012). 

218See Jean Ann Fox, The Military Lending Act 

Five Years Later, Consumer Federation of America 

(2012). 

also carry a credit insurance or debt 

cancellation product that would cause 

the MAPR to exceed the 36-percent 

threshold. In this regard, the 

Department’s estimate is conservative 

because the data relate only to consumer 

credit obtained by Service members, 

and not to other categories of 

individuals who could be covered 

borrowers. 

The Department is aware that there 

are other credit-related ancillary 

products that may be sold in connection 

with, and either at or before, the account 

opening. The Department has not 

estimated the amount of the transfer 

payments that might be associated with 

those credit-related ancillary products. 

To estimate the amount of the transfer 

payment for each credit card account, 

the Department assumes that 78 percent 

of Service members have a credit 

card,208 revolving an average balance of 

$5,000.209 The Department further 

assumes that a typical debt-cancellation 

product costs $1.10 per $100 of balance 

and has a payout rate of 21 percent.210

Assuming that a borrower makes only 

the minimum payment each month on 

this card while paying 28 percent APR, 

under the proposal, a creditor who 

offers a credit card with these terms 

could charge a fee for a credit insurance 

or debt cancellation product of no more 

than $0.67 per $100 of balance per 

month, a price of 8 percent interest per 

year. For a credit card with a credit 

insurance or debt cancellation product 

carrying standard prices, the amount 

transferred from a creditor to a covered 

borrower—that is, when the creditor 

complies with the 36-percent MAPR 

limit and foregoes revenue that the 

borrower thereby saves—would be $886 

per card over ten years.211

Second, from an examination of credit 

card offers, the Department estimates 

that between 44 and 100 percent of the 

78 percent of Service members who 

have a credit card account have a card 

with an APR sufficiently high that if the 

creditor also sells a credit insurance or 

debt cancellation product, the cost of 

credit could exceed the limit in 10 

U.S.C. 987(b). The Department assumes 

that 7 percent of these accounts actually 

use credit insurance or debt 

cancellation; therefore the estimates are 

based on the assumption that between 3 

percent and 7 percent of the 78 percent 

of Service members holding credit cards 

have a credit insurance or debt 

cancellation product.212

At the high-end, assuming that 78 

percent of Service members have a 

credit card that, given typical costs, 

might exceed the interest-rate limit if 

the borrower purchases credit insurance 

or debt cancellation and pays a penalty 

APR, and that 7 percent of these 

borrowers actually do purchase such a 

product, the amount that would be 

transferred is estimated to be $6.75 

million per year.213 Over ten years, the 

discounted amount that would be 

transferred would be between $54.13 

million (at a 7 percent discount rate) 

and $61.17 million (at a 3 percent 

discount rate). 

At the low-end, assuming that 44 

percent of Service members have a 

credit card that, given typical fees, 

might exceed the interest-rate limit if 

the borrower purchases credit insurance 

or debt cancellation and pays a penalty 

APR, and that 7 percent of these 

borrowers actually do purchase such a 

product, the amount that would be 

transferred is estimated to be $2.97 

million per year.214 Over ten years, the 

discounted amount that would be 

transferred would be between $23.82 

million (at a 7 percent discount rate) 

and $26.91 million (at a 3 percent 

discount rate). 

For non-credit card credit products 

that would be subject to the proposed 

regulation, the Department estimates the 

amount that would be transferred due to 

the interest-rate limit by considering 

three segments of that market for 

consumer credit: Payday loans, auto 

title loans, and non-purchase money 

installment loans. The Department 

assumes that approximately 12 percent 

of Service members use non-credit card 

credit products that would be covered 

under the Department’s regulation, if 

adopted as proposed.215 The prices 

associated with these credit products 

vary widely; for any given creditor, the 

amount that would be transferred as a 

result of compliance with the interestrate limit depends on how much that 

creditor charges for credit extended 

under the status quo. 

In order to estimate the amount that 

would be transferred, the Department 

assumes that between 7 percent and 4.9 

percent of Service members use payday 

loans with a median APR of 391 percent 

and a median ten transactions per year, 

each borrowed for 14 days,216 0.3 

percent of Service members use auto 

title loans with a median APR of 300 

percent,217 and 7 percent of Service 

members use installment loans with a 

median APR of 80 percent.218

Given typical prices of payday loans 

and borrowing patterns, the Department 

estimates that the value that would be 


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58634 Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 

219The Department assumes that the average loan 

amount is $392, ten loans of 14 days each are taken 

in a year, and the average APR is 391 percent. The 

Department calculates the transfer amount per 

borrower by finding the difference between the cost 

of a typical loan under the status quo, assuming that 

the loan falls outside the scope of the current rule 

($588), and the permissible cost of a loan complying 

with the 36 percent interest rate limitation ($54). 

220The Department calculates the estimated 

transfer amount by multiplying the number of 

active duty service members (1.4 million) by the 

percentage with a payday loan (4.9 percent), and 

the amount transferred per account ($534). 221The Department calculates the estimated 

transfer amount by multiplying the number of 

active duty service members (1.4 million) by the 

percentage with a payday loan (7 percent), and the 

amount transferred per account ($534). 

222See Stephens Inc., Forging Ahead: Growth, 

Opportunity and the Direction of the Alternative 

Financial Services Sector, presentation to the 

Community Financial Services Association of 

America, March 7, 2013 (estimating that one-third 

of lending volume is online and that 20 percent of 

the online market is offshore). 

223The Department assumes that the average 

principal borrowed is $951, average APR is 300 

percent, and the average loan term is 30 days. The 

Department calculates the transfer amount per 

borrower by finding the difference between the cost 

of a typical loan under the status quo, assuming that 

the loan falls outside the scope of the current rule 

($235), and the permissible cost of a loan complying 

with the 36 percent interest rate limitation ($28). 

See Susanna Montezemolo, Car-Title Lending, 

Center for Responsible Lending, July 2013, available 

at http://www.responsiblelending.org/state-oflending/reports/7-Car-Title-Loans.pdf. See 

Consumer Federation of America, Policy Brief: Gaps 

in the Military Lending Act Leave Many Service 

Members Vulnerable to Abusive Lending Practices, 

July 2013, available at http://www.consumerfed.org/ 

pdfs/130725-policybrief-mla-cfa.pdf (finding that a 

typical auto title loan has a 300 percent APR). The 

Department does not have data regarding auto-title 

creditors located offshore. 

224The Department assumes that a typical loan is 

$1,000 and borrowed for two years. Under the 

status quo with an APR of 80 percent, the monthly 

payment is $85 per month, for a sum of payments 

of $2,032. Under the proposal with an APR of 36 

percent, the monthly payment is $59, for a sum of 

payments of $1,417, a difference of $615. For 

information on typical military installment loans, 

see Jean Ann Fox, The Military Lending Act Five 

Years Later, Consumer Federation of America, May 

2012. 

225See Stephens Inc., Forging Ahead: Growth, 

Opportunity and the Direction of the Alternative 

Financial Services Sector, presentation to the 

Community Financial Services Association of 

America, March 7, 2013 (estimating that one-third 

of lending volume is online and that 20 percent of 

the online market is offshore). 

transferred is $534 per borrower per 

year for payday loans.219 Assuming that 

4.9 percent of Service members use 

payday loans each year, the Department 

estimates that the proposed regulation 

would result in transfer payments of 

$36.74 million per year relating to the 

domestic payday lending industry.220

Over ten years, the Department 

estimates that the amount of the transfer 

payments relating to the domestic 

payday lending industry would be 

between $260.45 million (at a 7 percent 

discount rate) and $350.11 million (at a 

3 percent discount rate). Alternatively, 

assuming that 7 percent of Service 

members use payday loans each year, 

the Department estimates that the 

amount of transfer payments on the 

domestic payday lending industry 

would be $52.16 million per year.221

Over ten years, the Department 

estimates that the transfer payments 

under the proposed regulation would be 

between $369.80 million (at a 7 percent 

discount rate) and $497.11 million (at a 

3 percent discount rate). 

Approximately 7 percent of volume in 

payday loans is done by online lenders 

based offshore.222 The Department 

estimates that the transfer payments 

relating to these offshore creditors 

would be between $2.57 million and 

$3.65 million per year. Over ten years, 

the Department estimates that the total 

amount of the transfer payments relating 

to these offshore creditors would be 

between $18.23 million (at a 7 percent 

discount rate, assuming 4.9 percent 

usage) and $34.80 million (at a 3 percent 

discount rate, assuming 7 percent 

usage). 

Assuming that 0.3 percent of Service 

members use auto title loans each year 

and that the average auto title loan 

carries an APR of 300 percent, the 

Department estimates that the interestrate limit would lead to transfer 

payments relating to the auto title 

lending industry of $0.87 million per 

year.223 Over ten years, the Department 

estimates that the total amount of the 

transfer payments relating to auto title 

lenders would be between $6.14 million 

(at a 7 percent discount rate) and $8.26 

million (at a 3 percent discount rate). 

Assuming that 7 percent of Service 

members use high-cost installment 

loans each year and that the average 

installment loan carries an APR of 80 

percent, the Department estimates that 

the interest-rate limit would result in 

transfer payments relating to the 

domestic installment lending industry 

of $60.06 million per year.224 Over ten 

years, the Department estimates that the 

total amount of transfer payments from 

installment-loan creditors would be 

between $425.77 million (at a 7 percent 

discount rate) and $572.35 million (at a 

3 percent discount rate). 

Approximately 7 percent of volume in 

the high-cost installment lending market 

is done by online lenders based 

offshore.225 The Department estimates 

the proposed regulation would result in 

transfer payments relating to these 

offshore creditors of approximately 

$4.20 million per year. Over ten years, 

the total amount of transfer payments 

from these offshore creditors are 

estimated to be between $29.80 million 

(at a 7 percent discount rate) and $40.06 

million (at a 3 percent discount rate). 

Overall, the Department estimates that 

the total amount of transfer payments 

relating to these four categories of 

consumer credit products would be 

between $100.64 million and $119.84 

million per year; over ten years, the 

overall amount of these transfer 

payments would be between $716.18 

million (assuming lower usage rates and 

a 7 percent discount rate) and $1.139 

billion (assuming higher usage rates and 

a 3 percent discount rate). Of these 

overall amounts, between $6.77 million 

and $7.85 million of the transfer 

payments would relate to offshore 

creditors, and between $48.03 million 

and $74.86 million over ten years. The 

transfer payments from domestic 

creditors would be between $93.87 

million and $111.99 million per year; 

over ten years, these transfer payments 

would be between $668.15 million 

(assuming lower usage rates and a 7 

percent discount rate) and $1.064 

billion (assuming higher usage rates and 

a 3 percent discount rate). Figure 5 

provides a summary of all of these 

figures for the transfer payments. 

FIGURE 5—AMOUNT OF TRANSFER PAYMENTS RELATING TO THE INTEREST-RATE LIMIT

[2013 dollars in millions] 

Annual 

PV 10-year, 

7% discount 

rate 

PV 10-year, 

3% discount 

rate 

Payday: 

(1) At 4.9% usage ................................................................................................................ $37 $260 $350 

(2) At 7% usage ................................................................................................................... 52 370 497 

Auto title ....................................................................................................................................... 0.87 6 8 

Installment .................................................................................................................................... 60 426 572 


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Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 58635 

226 50 App. USC 527(a). 227See analysis in section IV.A. for calculations. 

The Department expects expenditure by the private 

sector of approximately $96.03 million in the 

implementation year for setting up the required 

disclosures and optional database inquiry and 

record retention process. On an ongoing basis, the 

Department expects expenditure by the private 

sector of $20.34 million to comply with the 

required disclosures and optional database inquiry 

and record retention procedures during the course 

of credit transactions. 

228 5 U.S.C. 601. 229 44 U.S.C. 3502, 3506–07. 

FIGURE 5—AMOUNT OF TRANSFER PAYMENTS RELATING TO THE INTEREST-RATE LIMIT—Continued 

[2013 dollars in millions] 

Annual 

PV 10-year, 

7% discount 

rate 

PV 10-year, 

3% discount 

rate 

Credit Cards: 

(1) At 3% of cards ................................................................................................................ 3 24 27 

(2) At 7% of cards ................................................................................................................ 7 54 61 

TOTAL 

Low (4.9% payday, 3% cards) ............................................................................................. 101 716 958 

High (7% payday, 7% cards) ............................................................................................... 120 856 1,139 

Apart from the MLA, for active duty 

Service members who are materially 

affected by virtue of his or her military 

service, the Servicemembers Civil Relief 

Act (SCRA) limits the permissible rate 

of interest on outstanding pre-service 

balances at 6 percent APR.226 To avail 

himself or herself of the protections of 

the SCRA, a Service member must make 

a written request to the creditor. 

Because data is unavailable on the 

extent to which creditors are reducing 

pre-service obligations for Service 

members, the Department is unable to 

adjust the estimated amount of the 

transfer payments relating to the 

interest-rate limit of the proposed 

regulation to account for the potential 

effects of the SCRA. 

Furthermore, the Department does not 

expect that the interest rate limitation 

will have undesirable side-effects for 

Service members. The Department 

observes that numerous creditors 

currently supply credit to Service 

members in a manner that already 

should comply with the interest-rate 

limit. In the Department’s experience, 

covered borrowers enjoy access to lowand no-cost credit. For example, to 

provide monetary support to Service 

members and their families with 

financial hardships, the Military 

Services have partnered with nonprofit 

charitable organizations chartered to 

provide relief services to Service 

members and their families. The four 

Relief Societies for the Military Services 

provide no-interest loans and grants for 

shortfalls in household expenses and 

unforeseen emergencies. 

B. Unfunded Mandates Reform Act (Sec. 

202, Pub. L. 104–4) 

The Department certifies that this 

proposed regulation 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.227

C. Regulatory Flexibility Act 

The Department certifies that this 

proposed regulation is not subject to the 

Regulatory Flexibility Act (‘‘RFA’’) 228

because the regulation, if adopted as 

proposed, would not have a significant 

economic impact on a substantial 

number of small entities. 

The North American Industrial 

Classification (NAIC) codes for the 

affected businesses are the following: 

(a) 522110—Commercial Banking 

(b) 522130—Credit Unions 

(c) 522210—Credit Card Issuing 

(d) 522291—Consumer Lending 

Pursuant to the Small Business 

Administration (SBA) Small Business 

Size Standards, a consumer lending 

business is a ‘‘small business entity’’ if 

it has less than $35.5 million in receipts. 

According to the 2007 Economic Census 

(the last year for which data is 

available), approximately 96 percent of 

firms in NAIC code 522291 are small 

business entities. For the other three 

potentially affected businesses, the SBA 

Small Business Size Standards 

considers any business with less than 

$500 million in assets to be a small 

business entity. 

Approximately 81 percent of firms in 

NAIC code 522110 and 94 percent of 

firms in NAIC code 522130 are small 

business entities. Overwhelmingly, 

credit card products are issued by 

insured depository institutions and, 

therefore, small business entities issuing 

credit cards (included within NAIC 

code 522210) are covered by the 

previously described codes. 

While a substantial portion of firms in 

each affected market are ‘‘small business 

entities,’’ Service members and their 

dependents make up only a small 

portion of the consumers for those 

businesses. Because only approximately 

2.5 percent of households in the United 

States include an active duty Service 

member, the interest-rate limit and other 

MLA conditions of the proposed 

regulation would affect a small 

percentage of the consumers served by 

entities that could be creditors covered 

by this regulation. Thus, the Department 

concludes that—even though there 

appears to be a large percentage of small 

business entities in each affected class 

of business—the proposed regulation 

would not (for the purposes of the RFA) 

have a significant economic impact on 

a substantial number of small 

businesses because those businesses 

nonetheless have very few customers 

who are covered borrowers. The 

Department seeks comment, particularly 

from potentially affected small 

businesses themselves, on the possible 

impact of the proposed rule on small 

businesses. Please provide data and 

studies that support the comment. 

D. Paperwork Reduction Act 

Proposed §§ 232.5 and 232.6 contain 

information-collection requirements. 

The Department has submitted the 

following proposal to OMB under the 

provisions of the Paperwork Reduction 

Act.229 Comments are invited on: (a) 

Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

Department, 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. 

Title: Database Inquiry and Mandatory 

Loan Disclosures as Part of Limitations 

on Terms of Consumer Credit Extended 

to Service Members and Their 

Dependents. 


tkelley on DSK3SPTVN1PROD with PROPOSALS6
58636 Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 

Type of Request: Reinstatement with 

change. 

Number of Respondents: 40,000. 

Responses per Respondent: Varies by 

type of respondent. 

Annual Responses: 191 million. 

Average Burden per Response: Varies 

by type of response. On an ongoing 

basis, respondents likely will spend 1 

minute (0.02 hours) for single-record 

borrower inquiry (70 million); 1.67 

minutes (0.03 hours) for orally 

providing the required information to 

covered borrowers (4 million 

responses); and 0 minutes for printed 

disclosures included in all consumer 

credit contracts (191 million). In the 

first year, there is expected to be a onetime burden of 110 labor hours to set up 

the mandatory oral and printed 

disclosures, as well as a process for 

conducting covered-borrower checks 

and retaining records. 

Annual Burden Hours: 4,000,000 setup burden hours in the first year; 

1,266,747 ongoing burden hours each 

year. 

Needs and Uses: With respect to any 

extension of consumer credit to a 

covered borrower, a creditor would be 

required to provide to the borrower (a) 

a statement of the MAPR and (b) a 

Statement of Federal Protections. In 

approximately 4 million transactions, 

the required information would be 

provided orally as well as in a printed 

document; in approximately 191 million 

transactions, the required information 

would be included in standard account 

agreements. Additionally, a creditor 

may, at its discretion, identify the status 

of a consumer-applicant by querying the 

MLA Database and, in the event that the 

inquiry indicates that consumerapplicant is not a covered borrower, 

take advantage of a safe harbor from 

liability under 10 U.S.C. 987 by 

retaining a record of the information 

obtained from the database. 

Affected Public: Creditors making 

loans that are subject to a finance charge 

or payable by a written agreement in 

more than four installments, except for 

loans that are mortgage loans and 

purchase-money financing for vehicles 

or other personal property. 

Frequency: One set of disclosures for 

each transaction involving consumer 

credit; one database inquiry for each 

transaction involving consumer credit. 

Respondents’ Obligation: Mandatory 

loan disclosures; optional database 

inquiry and subsequent record 

retention. 

OMB Desk Officer 

Written comments and 

recommendations on the proposed 

information collection should be sent to 

Ms. Jasmeet Seehra at the Office of 

Management and Budget, DoD Desk 

Officer, Room 10102, New Executive 

Office Building, Washington, DC 20503, 

with a copy to the Office of the Deputy 

Assistant Secretary of Defense (Military 

Community and Family Policy), 4000 

Defense Pentagon, Washington, DC 

20301–4000. Comments can be received 

from 30 to 60 days after the date of this 

document, but comments to OMB will 

be most useful if received by OMB 

within 30 days after the date of this 

document. 

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 Office of the Deputy 

Assistant Secretary of Defense (Military 

Community and Family Policy), 4000 

Defense Pentagon, Washington, DC 

20301–4000, Marcus Beauregard, 571– 

372–5357. 

E. Executive Order 13132 Federalism 

Executive Order 13132 (‘‘EO 13132’’) 

requires Executive departments and 

agencies, including the Department, to 

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, override 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 regulation, in section III, the 

proposal would revise the 

corresponding section of the 

Department’s existing regulation to 

reflect amendments to 10 U.S.C. 

987(d)(2) enacted in section 661(a)(1) of 

the 2013 Act. This amendment clarifies 

the scope of state laws subject to 

preemption by 10 U.S.C. 987. 

The proposed regulation, if adopted 

as proposed, 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 regulation has no federalism 

implications that warrant the 

preparation of a Federalism Assessment 

in accordance with EO 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 be 

amended by revising 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; examples. 

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 Administrative enforcement. 

232.11 Servicemembers Civil Relief Act 

provisions unaffected. 

232.12 Effective dates. 

Authority: 10 U.S.C. 987. 

§ 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 extensions of credit to 

Service members and their dependents, 

and to provide additional protections 

relating to such transactions in 

accordance with 10 U.S.C. 987. 

(c) Coverage. This part defines the 

types of transactions involving 

‘‘consumer credit,’’ a ‘‘creditor,’’ and a 

‘‘covered borrower’’ that are subject to 

the regulation, 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 


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Federal Register / Vol. 79, No. 188 / Monday, September 29, 2014 / Proposed Rules 58637 

charges, that may be associated with a 

covered extension of consumer credit; 

(2) Requires a creditor to provide to a 

covered borrower a statement of the 

Military Annual Percentage Rate, or 

MAPR, before or at the time the 

borrower becomes obligated on the 

transaction or establishes an account for 

the consumer credit. The statement 

required by this part differs from and is 

in addition to the disclosures that must 

be provided to consumers under the 

Truth in Lending Act; 

(3) Provides for the method a creditor 

must 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. 

§ 232.2 Applicability; examples. 

(a) Applicability. This part applies to 

consumer credit extended by a creditor 

to a covered borrower, as those terms 

are defined in this part. Nothing in this 

part applies to a credit transaction or 

account relating to a consumer who is 

not a covered borrower at the time he 

or she becomes obligated on a credit 

transaction or establishes an account for 

credit. 

(b) Examples. The examples in this 

part are not exclusive. To the extent that 

an example in this part implicates a 

term or provision of Regulation Z (12 

CFR part 1026), issued by the Consumer 

Financial Protection Bureau to 

implement the Truth in Lending Act, 

Regulation Z shall control the meaning 

of that term or provision. 

§ 232.3 Definitions. 

(a) Affiliate means any person that 

controls, is controlled by, or is under 

common control with another person. 

(b) Billing cycle has the same meaning 

as ‘‘billing cycle’’ in Regulation Z. 

(c) Bureau means the Consumer 

Financial Protection Bureau. 

(d) Closed-end credit means consumer 

credit (but for the conditions applicable 

to consumer credit under this part) 

other than consumer credit that is 

‘‘open-end credit’’ as that term is 

defined in Regulation Z. 

(e) Consumer means a natural person. 

(f)(1) Consumer credit means credit 

offered or extended to a covered 

borrower primarily for personal, family, 

or household purposes, and that is: 

(i) Subject to a finance charge; or 

(ii) Payable by a written agreement in 

more than four installments. 

(2) Exceptions. Notwithstanding 

paragraph (f)(1) of this section, 

consumer credit does not mean: 

(i) A residential mortgage, which is 

any credit transaction secured by an 

interest in the covered borrower’s 

dwelling, including a transaction to 

finance the purchase or initial 

construction of a dwelling, any 

refinance transaction, home equity loan 

or line of credit, or reverse mortgage; 

(ii) Any credit transaction that is 

expressly intended to finance the 

purchase of a motor vehicle when the 

credit is secured by the vehicle being 

purchased; 

(iii) Any credit transaction that is 

expressly intended to finance the 

purchase of personal property when the 

credit is secured by the property being 

purchased; and 

(iv) Any credit transaction that is an 

exempt transaction for the purposes of 

Regulation Z (other than a transaction 

exempt under 12 CFR 1026.29) or 

otherwise is not subject to disclosure 

requirements under Regulation Z. 

(g) Covered borrower means a 

consumer who, at the time the 

consumer becomes obligated on a 

consumer credit transaction or 

establishes an account for consumer 

credit, is a covered member (as defined 

in this paragraph) or a dependent (as 

defined in this paragraph) of a covered 

member. 

(1) The term ‘‘covered member’’ 

means a member of the armed forces 

who is serving on— 

(i) Active duty pursuant to title 10, 

title 14, or title 32, United States Code, 

under a call or order that does not 

specify a period of 30 days or fewer, or 

(ii) Active Guard and Reserve duty, as 

that term is defined in 10 U.S.C. 

101(d)(6). 

(2) The term ‘‘dependent’’ with 

respect to a covered member means a 

person described in subparagraph (A), 

(D), (E), or (I) of 10 U.S.C. 1072(2). 

(h) Credit means the right granted to 

a consumer by a creditor to defer 

payment of debt or to incur debt and 

defer its payment. 

(i) Creditor, except as provided in 

§ 232.8(a) and § 232.8(f), means a person 

who is: 

(1) Engaged in the business of 

extending consumer credit; or 

(2) An assignee of a person described 

in paragraph (i)(1) of this section with 

respect to any consumer credit 

extended. 

(3) For the purposes of this definition, 

a creditor is engaged in the business of 

extending consumer credit if the 

creditor considered by itself and 

together with its affiliates meets the 

transaction standard for a ‘‘creditor’’ 

under Regulation Z with respect to 

extensions of consumer credit to 

covered borrowers. 

(j) Department means the Department 

of Defense. 

(k) 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. 

(l) Electronic fund transfer has the 

same meaning as in the regulation 

issued by the Bureau to implement the 

Electronic Fund Transfer Act, as 

amended from time to time (12 CFR part 

1005). 

(m) Finance charge has the same 

meaning as ‘‘finance charge’’ in 

Regulation Z. 

(n) Military annual percentage rate 

(MAPR). The MAPR is the cost of the 

consumer credit expressed as an annual 

rate, and shall be calculated in 

accordance with § 232.4(c). 

(o) Open-end credit means consumer 

credit that (but for the conditions 

applicable to consumer credit under this 

part) is ‘‘open-end credit’’ under 

Regulation Z. 

(p) Person means a natural person or 

organization, including any corporation, 

partnership, proprietorship, association, 

cooperative, estate, trust, or government 

unit. 

(q) Regulation Z means any rules, or 

interpretations thereof, issued by the 

Bureau 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 

Bureau to issue such interpretations or 

approvals. However, for any provision 

of this part requiring a creditor to 

comply with Regulation Z, a creditor 

who is subject to Regulation Z (12 CFR 

part 226) issued by the Board of 

Governors of the Federal Reserve 

System must continue to comply with 

12 CFR part 226. Words that are not 

defined in this rule have the same 

meanings given to them in Regulation Z 

(12 CFR part 1026) issued by the 

Bureau, as amended from time to time, 

including any interpretation thereof by 

the Bureau or an official or employee of 

the Bureau duly authorized by the 

Bureau 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. 

§ 232.4 Terms of consumer credit 

extended to covered borrowers. 

(a) General conditions. A creditor who 

extends consumer credit to a covered 

borrower may not require the covered 

borrower to pay an MAPR for the credit 

with respect to such extension of credit, 

except as: 


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(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) Limit on cost of consumer credit. 

A creditor may not impose an MAPR 

greater than 36 percent in connection 

with an extension of consumer credit 

that is closed-end credit or in any 

billing cycle for open-end credit. 

(c) Calculation of the MAPR. 

(1) Charges included in the MAPR. 

The charges for the MAPR shall include, 

as applicable to the extension of 

consumer credit: 

(i) Credit insurance premiums, 

including charges for single premium 

credit insurance, fees for debt 

cancellation or debt suspension 

agreements; 

(ii) Fees for credit-related ancillary 

products sold in connection with and 

either at or before consummation of the 

credit transaction for closed-end credit 

or upon account opening for open-end 

credit; and 

(iii) Except for a bona fide fee (other 

than a periodic rate) which may be 

excluded under paragraph (d) of this 

section: 

(A) Finance charges associated with 

the consumer credit; 

(B) Any application fee charged to a 

covered borrower who applies for 

consumer credit; and 

(C) Any fee imposed for participation 

in any plan or arrangement for 

consumer credit, subject to paragraph 

(c)(2)(ii)(B) of this section. 

(iv) Certain exclusions of Regulation Z 

inapplicable. Any charge set forth in 

paragraphs (c)(1)(i)–(iii) of this section 

shall be included in the calculation of 

the MAPR even if that charge would be 

excluded from the finance charge under 

Regulation Z. 

(2) Computing the MAPR—(i) Closedend credit. For closed-end credit, the 

MAPR shall be calculated following the 

rules for calculating and disclosing the 

‘‘Annual Percentage Rate (APR)’’ for 

credit transactions under Regulation Z 

based on the charges set forth in 

paragraph (c)(1) of this section. 

(ii) Open-end credit—(A) In general. 

Except as provided in paragraph 

(c)(2)(ii)(B) of this section, for open-end 

credit, the MAPR shall be calculated 

following the rules for calculating the 

effective annual percentage rate for a 

billing cycle as set forth in § 1026.14(c)– 

(d) of Regulation Z (as if a creditor must 

comply with that section) based on the 

charges set forth in paragraph (c)(1) of 

this section. Notwithstanding 

§ 1026.14(c)–(d) of Regulation Z, the 

amount of charges related to opening, 

renewing, or continuing an account 

must be included in the calculation of 

the MAPR to the extent those charges 

are set forth in paragraph (c)(1) of this 

section. 

(B) No balance during a billing cycle. 

For open-end credit, if the MAPR 

cannot be calculated in a billing cycle 

because there is no balance in the 

billing cycle, a creditor may not impose 

any fee or charge during that billing 

cycle, except that the creditor may 

impose a fee for participation in any 

plan or arrangement for that open-end 

credit so long as the participation fee 

does not exceed $100 per annum, 

regardless of the billing cycle in which 

the participation fee is imposed; 

provided, however, that the $100-per 

annum limitation on the amount of the 

participation fee does not apply to a 

bona fide participation fee imposed in 

accordance with paragraph (d) of this 

section. 

(d) Bona fide fee charged to a credit 

card account—(1) In general. For 

consumer credit extended in a credit 

card account under an open-end (not 

home-secured) consumer credit plan, a 

bona fide fee, other than a periodic rate, 

is not a charge required to be included 

in the MAPR pursuant to paragraph 

(c)(1) of this section. The exclusion 

provided for any bona fide fee under 

this paragraph applies only to the extent 

that the charge by the creditor is a bona 

fide fee, and must be reasonable and 

customary for that type of fee. 

(2) Ineligible items. The exclusion for 

bona fide fees in paragraph (d)(1) of this 

section does not apply to any credit 

insurance premium, including charges 

for single premium credit insurance, 

fees for debt cancellation or debt 

suspension agreements, or to any fees 

for credit-related ancillary products sold 

in connection with and either at or 

before consummation of the credit 

transaction or upon account opening. 

(3) Standards relating to bona fide 

fees—(i) Like-kind fees. To assess 

whether a bona fide fee is reasonable 

and customary under paragraph (d)(1) of 

this section, the fee must be compared 

to fees typically imposed by other 

creditors for the same or a substantially 

similar product or service. For example, 

when assessing a bona fide cash 

advance fee, that fee must be compared 

to fees charged by other creditors for 

transactions in which consumers 

receive extensions of credit in the form 

of cash or its equivalent. 

(ii) Safe harbor. A bona fide fee is 

reasonable under paragraph (d)(1) of 

this section if the amount of the fee is 

less than or equal to an average amount 

of a fee for the same or a substantially 

similar product or service charged by 5 

or more creditors each with at least $3 

billion in outstanding loans on U.S. 

credit card accounts at any time during 

the 3-year period preceding the time 

such average is computed. 

(iii) Reasonable fee. A bona fide fee 

that is higher than an average amount, 

as calculated under paragraph (d)(3)(ii) 

of this section, also may be reasonable 

under paragraph (d)(1) of this section 

depending on other factors relating to 

the credit card account. A bona fide fee 

charged by a creditor is not 

unreasonable solely because other 

creditors do not charge a fee for the 

same or a substantially similar product 

or service. 

(iv) Customary. A bona fide fee 

computed as a percentage of the amount 

of a transaction is customary under 

paragraph (d)(1) of this section so long 

as other creditors typically compute, or 

customarily have computed, that fee for 

the same or a substantially similar 

product or service on a percentage basis. 

Nothing in this paragraph (d)(3)(iv) shall 

prohibit a bona fide fee that is a fixed 

amount from being customary for the 

purpose of meeting the condition set 

forth in paragraph (d)(1) of this section, 

even if substantially all other creditors 

currently compute that fee on a 

percentage basis. Nothing in this 

paragraph (d)(3)(iv) shall prohibit a 

bona fide fee that is charged on a 

percentage basis from being customary 

for the purpose of meeting the condition 

set forth in paragraph (d)(1) of this 

section, even if substantially all other 

creditors currently charge a fixed 

amount. 

(v) Indicia of reasonableness for a 

participation fee. An amount of a bona 

fide fee for participation in a credit card 

account may be reasonable and 

customary under paragraph (d)(1) of this 

section if that amount reasonably and 

customarily corresponds to the credit 

limit in effect or credit made available 

when the fee is imposed, to the services 

offered under the credit card account, or 

to other factors relating to the credit 

card account. For example, even if other 

creditors typically charge $100 per 

annum for participation in credit card 

accounts, a $400 fee nevertheless may 

be reasonable and customary if (relative 

to other accounts carrying participation 

fees) the credit made available to the 

covered borrower is significantly higher 

or additional services or other benefits 

are offered under that account. 

(4) If a creditor imposes any fee (other 

than a periodic rate) that is not a bona 

fide fee and imposes a finance charge to 

a covered borrower, the total amount of 

those fees, including any bona fide fees, 

and other finance charges shall be 


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included in the MAPR pursuant to 

paragraph (c) of this section. 

(5) Rule of construction. Nothing in 

paragraph (d)(1) of this section 

authorizes the imposition of fees or 

charges otherwise prohibited by this 

part or by other applicable State or 

Federal law. 

§ 232.5 Identification of covered borrower. 

(a) In general. A creditor may 

conclusively determine whether credit 

is offered or extended to a covered 

borrower, and thus may be subject to 10 

U.S.C. 987 and the requirements of this 

part, by assessing the status of a 

consumer in accordance with this 

section. A creditor also is permitted to 

assess whether a consumer is a covered 

borrower by using other methods, as the 

creditor may elect. 

(b) Safe harbor—(1) Department 

database. To determine whether a 

consumer is a covered borrower, a 

creditor may verify the status of a 

consumer by accessing the information 

relating to that consumer, if any, in the 

database maintained by the Department, 

available at http://www.dmdc.osd.mil/ 

mla/owa/home. A search of the 

Department’s database requires the 

entry of the consumer’s last name, date 

of birth, and Social Security number. 

(2) Determination and recordkeeping. 

Except as provided in paragraph (c) of 

this section, when a creditor enters into 

a transaction or establishes an account 

for consumer credit, a determination by 

a creditor regarding the status of a 

consumer based on information 

obtained from the Department’s 

database shall be deemed to be 

conclusive with respect to that 

transaction or account involving 

consumer credit between the creditor 

and that consumer, so long as that 

creditor maintains a record of the 

information so obtained. 

(c) Actual knowledge. (1) If at the time 

a creditor enters into a transaction or 

establishes an account for consumer 

credit the creditor has actual knowledge 

that a consumer is a covered borrower, 

the creditor shall treat the consumer as 

a covered borrower notwithstanding any 

determination by that creditor based on 

information obtained from the 

Department’s database. Actual 

knowledge that a consumer is a covered 

borrower obtained after a creditor has 

entered into a transaction or established 

an account for consumer credit shall not 

affect that transaction or account if the 

prior determination by that creditor was 

based solely on information obtained 

from the Department’s database. 

(2) For the purposes of this section, 

actual knowledge of the status of a 

consumer as a covered borrower may be 

established only on the basis of a record 

(including any electronic record) 

collected by the creditor prior to 

entering into a transaction or 

establishing an account for consumer 

credit and maintained in any system 

used by the creditor that relates to the 

consumer credit involving that 

consumer. 

§ 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 covered 

borrower the following information 

before or at the time the borrower 

becomes obligated on the transaction or 

establishes an account for the consumer 

credit: 

(1) A statement of the MAPR 

applicable to the extension of consumer 

credit; 

(2) Any disclosure required by 

Regulation Z, which shall be provided 

only in accordance with the 

requirements of Regulation Z that apply 

to that disclosure; 

(3) A clear description of the payment 

obligation of the covered borrower, as 

applicable. A payment schedule (in the 

case of closed-end credit) or accountopening disclosure (in the case of openend credit) provided pursuant to 

paragraph (a)(2) of this section satisfies 

this requirement; and 

(4) A statement that ‘‘Federal law 

provides important protections to 

regular or reserve members 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 fewer, 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) One-time delivery; multiple 

creditors. (1) The information described 

in paragraphs (a)(1), (a)(3), and (a)(4) of 

this section are not required to be 

provided to a covered borrower more 

than once for the transaction or the 

account established for consumer credit 

with respect to that borrower. 

(2) Multiple creditors. If a transaction 

involves more than one creditor, the 

creditors shall agree among themselves 

which creditor must provide the 

information described in paragraphs 

(a)(1), (a)(3), and (a)(4) of this section. 

(c) Statement of the MAPR—(1) In 

general. A creditor may satisfy the 

requirement of paragraph (a)(1) of this 

section by describing the charges the 

creditor may impose, in accordance 

with this part and subject to the terms 

and conditions of the agreement relating 

to the consumer credit to calculate the 

MAPR. Paragraph (a)(1) of this section 

shall not be construed as requiring a 

creditor to describe the MAPR as a 

numerical value or to describe the total 

dollar amount of all charges in the 

MAPR that apply to the extension of 

consumer credit. 

(2) Method of providing a statement 

regarding the MAPR. A creditor may 

include a statement of the MAPR 

applicable to the consumer credit in the 

agreement with the covered borrower 

involving the consumer credit 

transaction. Paragraph (a)(1) of this 

section shall not be construed as 

requiring a creditor to include a 

statement of the MAPR applicable to an 

extension of consumer credit in any 

advertisement relating to the credit. 

(3) Model statement. A statement 

substantially similar to the following 

statement may be used for the purpose 

of paragraph (a)(1) of this section: 

‘‘Federal law provides important 

protections to members of the Armed 

Forces and their dependents relating to 

extensions of consumer credit. In 

general, the cost of consumer credit to 

a member of the Armed Forces and his 

or her dependent may not exceed an 

annual percentage rate of 36 percent. 

This rate must include, as applicable to 

the credit transaction or account: the 

costs associated with credit insurance 

premiums; fees for ancillary products 

sold in connection with the credit 

transaction; any application fee charged 

(other than certain application fees for 

a credit card account); and any 

participation fee charged (other than 

certain participation fees for a credit 

card account).’’ 

(d) Methods of delivery—(1) Written 

disclosures. The creditor shall provide 

the information required by paragraphs 

(a)(1), (a)(3), and (a)(4) of this section in 

writing in a form the covered borrower 

can keep. 

(2) Oral disclosures. The creditor also 

shall orally provide the information 

required by paragraphs (a)(1), (a)(3), and 

(a)(4) of this section. In mail 

transactions, internet transactions, and 

transactions conducted at the point-ofsale in connection with the sale of a 

nonfinancial product or service, the 

creditor satisfies this requirement if it 

provides a toll-free telephone number 


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on or with the written disclosures that 

a covered borrower may use to obtain 

oral disclosures and the creditor 

provides oral disclosures when the 

covered borrower contacts the creditor 

for this purpose. 

(e) When disclosures are required for 

refinancing or renewal of covered loan. 

The refinancing or renewal of consumer 

credit requires new disclosures under 

this section only when the transaction 

for that credit would be considered a 

new transaction that requires 

disclosures under Regulation Z. 

§ 232.7 Preemption. 

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

implemented by this part 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 by this part to the extent that 

it provides protection to a covered 

borrower greater than those protections 

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

(b) Different treatment under State 

law of covered borrowers is prohibited. 

A State may not: 

(1) Authorize creditors to charge 

covered borrowers rates of interest for 

any consumer credit or loans that are 

higher than the legal limit for residents 

of the State, or 

(2) Permit the violation or waiver of 

any State consumer lending protection 

covering consumer credit 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. 

§ 232.8 Limitations. 

Title 10 U.S.C. 987 makes it unlawful 

for any creditor to extend consumer 

credit to a covered borrower with 

respect to which: 

(a) 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. This paragraph 

shall not apply to a transaction when 

the same creditor extends consumer 

credit to a covered borrower to refinance 

or renew an extension of credit that was 

not covered by this paragraph because 

the consumer was not a covered 

borrower at the time of the original 

transaction. For the purposes of this 

paragraph only, the term ‘‘creditor’’ 

means a person engaged in the business 

of extending consumer credit subject to 

applicable law to engage in deferred 

presentment transactions or similar 

payday loan transactions (as described 

in the relevant law), provided however, 

that the term does not include a person 

that is chartered or licensed under 

Federal or State law as a bank, savings 

association, or credit union. 

(b) 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. 501 et seq.). 

(c) The creditor requires the covered 

borrower to submit to arbitration or 

imposes other onerous legal notice 

provisions in the case of a dispute. 

(d) The creditor demands 

unreasonable notice from the covered 

borrower as a condition for legal action. 

(e) The creditor uses a check or other 

method of access to a deposit, savings, 

or other financial account maintained 

by the covered borrower, except that, in 

connection with a consumer credit 

transaction with an MAPR consistent 

with § 232.4(b), the creditor may: 

(1) Require an electronic fund transfer 

to repay a consumer credit transaction, 

unless otherwise prohibited by law; 

(2) Require direct deposit of the 

consumer’s salary as a condition of 

eligibility for consumer credit, unless 

otherwise prohibited by law; or 

(3) 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. 

(f) The creditor requires as a condition 

for the extension of consumer credit that 

the covered borrower establish an 

allotment to repay the obligation. For 

the purposes of this paragraph only, the 

term ‘‘creditor’’ shall not include a 

‘‘military welfare society,’’ as defined in 

10 U.S.C. 1033(b)(2), or a ‘‘service relief 

society,’’ as defined in 37 U.S.C. 

1007(h)(4). 

(g) 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. 

§ 232.9 Penalties and remedies. 

(a) Misdemeanor. A creditor 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 State or Federal law or 

regulation 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 that 

fails to comply with 10 U.S.C. 987 as 

implemented by this part or which 

contains one or more provisions 

prohibited under 10 U.S.C. 987 as 

implemented by this part 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 to 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. 

(e) Civil liability—(1) In general. A 

person who violates 10 U.S.C. 987 as 

implemented by this part with respect 

to any person is civilly liable to such 

person for: 

(i) Any actual damage sustained as a 

result, but not less than $500 for each 

violation; 

(ii) Appropriate punitive damages; 

(iii) Appropriate equitable or 

declaratory relief; and 

(iv) Any other relief provided by law. 

(2) Costs of the action. In any 

successful action to enforce the civil 

liability described in paragraph (e)(1) of 

this section, the person who violated 10 

U.S.C. 987 as implemented by this part 

is also liable for the costs of the action, 

together with reasonable attorney fees as 

determined by the court. 

(3) Effect of finding of bad faith and 

harassment. In any successful action by 

a defendant under this section, if the 

court finds the action was brought in 

bad faith and for the purpose of 

harassment, the plaintiff is liable for the 

attorney fees of the defendant as 

determined by the court to be 

reasonable in relation to the work 

expended and costs incurred. 

(4) Defenses. A person may not be 

held liable for civil liability under 

paragraph (e) of this section if the 

person shows by a preponderance of 

evidence that the violation was not 

intentional and resulted from a bona 

fide error notwithstanding the 

maintenance of procedures reasonably 

adapted to avoid any such error. 

Examples of a bona fide error include 

clerical, calculation, computer 

malfunction and programming, and 

printing errors, except that an error of 


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legal judgment with respect to a 

person’s obligations under 10 U.S.C. 987 

as implemented by this part is not a 

bona fide error. 

(5) Jurisdiction, venue, and statute of 

limitations. An action for civil liability 

under paragraph (e) of this section may 

be brought in any appropriate United 

States district court, without regard to 

the amount in controversy, or in any 

other court of competent jurisdiction, 

not later than the earlier of: 

(i) Two years after the date of 

discovery by the plaintiff of the 

violation that is the basis for such 

liability; or 

(ii) Five years after the date on which 

the violation that is the basis for such 

liability occurs. 

§ 232.10 Administrative enforcement. 

The provisions of this part, other than 

§ 232.9(a), shall be enforced by the 

agencies specified in section 108 of the 

Truth in Lending Act (15 U.S.C. 1607) 

in the manner set forth in that section 

or under any other applicable 

authorities available to such agencies by 

law. 

§ 232.11 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). 

§ 232.12 Effective dates. 

(a) Prior extensions of consumer 

credit. Consumer credit that is extended 

to a covered borrower and 

consummated any time between 

October 1, 2007, and [EFFECTIVE DATE 

OF FINAL REGULATION, AS 

AMENDED], are subject to the 

requirements of this part as were 

established by the Department and 

effective on October 1, 2007. 

(b) New extensions of consumer 

credit. Except as provided in paragraphs 

(c) and (d) of this section, the 

requirements of this part, as amended 

by the Department and effective as of 

[EFFECTIVE DATE OF FINAL 

REGULATION], shall apply only to a 

consumer credit transaction or account 

for consumer credit consummated or 

established on or after [EFFECTIVE 

DATE OF FINAL REGULATION]. 

(c) Provisions of 10 U.S.C. 987(d)(2). 

The amendments to 10 U.S.C. 987(d)(2) 

enacted in section 661(a) of the National 

Defense Authorization Act for Fiscal 

Year 2013 (Pub. L. 112–239, 126 Stat. 

1785), as reflected in § 232.7(b) of this 

part, shall take effect on January 2, 2014. 

(d) Civil liability remedies. The 

provisions set forth in § 232.9(e) shall 

apply with respect to consumer credit 

extended on or after January 2, 2013. 

Dated: September 22, 2014. 

Aaron Siegel, 

Alternate OSD Federal Register Liaison 

Officer, Department of Defense. 

[FR Doc. 2014–22900 Filed 9–26–14; 8:45 am] 

BILLING CODE 5001–06–P 


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