Federal Register / Vol. 72, No. 69 / Wednesday, April 11, 2007 / Proposed Rules 18157 

PART 39—AIRWORTHINESS 

DIRECTIVES 

1. The authority citation for part 39 

continues to read as follows: 

Authority: 49 U.S.C. 106(g), 40113, 44701. 

§ 39.13 [Amended] 

2. The FAA amends § 39.13 by adding 

the following new AD: 

Piaggio Aero Industries S.P.A.: Docket No. 

FAA–2007–27532; Directorate Identifier 

2007–CE–021–AD. 

Comments Due Date 

(a) We must receive comments by May 11, 

2007. 

Affected ADs 

(b) None. 

Applicability 

(c) This AD applies to P–180 airplanes, 

serial numbers 1004 through 1112, 

certificated in any category. 

Subject 

(d) Air Transport Association of America 

(ATA) Code 53: Fuselage. 

Reason 

(e) The mandatory continuing 

airworthiness information (MCAI) states: 

One P 180 aircraft experienced a jamming 

of its longitudinal flight control cables. 

Investigations revealed that its fuselage drain 

holes were plugged, and water was trapped 

in the lower fuselage. 

As a consequence of plugged drain holes, 

water can accumulate and freeze when the 

aircraft reaches and holds altitudes where 

temperature is below the freezing point. If 

not corrected this may cause the loss of 

control of the airplane. 

Actions and Compliance 

(f) Unless already done, do the following 

actions: 

(1) At the next scheduled maintenance 

inspection or 1 month after the effective date 

of the AD, whichever occurs later, and 

repetitively thereafter at intervals not to 

exceed every 12 months, inspect fuselage 

drain holes and the passenger evaporator 

drain line for proper operation and do all the 

necessary corrective actions, following the 

accomplishment instructions of the Piaggio 

Aero Industries S.p.A. Mandatory SB–80–

0220, dated August 8, 2006. 

Note 1: We have established the repetitive 

inspection times of this AD so that they may 

coincide with annual inspections. 

Note 2: We encourage you to update your 

maintenance program by inserting the 

Temporary Revision of the Piaggio P 180 

Avanti Maintenance Manual (AMM) attached 

to the Piaggio Aero Industries S.p.A. 

Mandatory SB–80–0220, dated August 8, 

2006. 

FAA AD Differences 

Note 3: This AD differs from the MCAI 

and/or service information as follows: We 

have added repetitive inspection 

requirements in the AD to coincide with the 

Piaggio P 180 Avanti Maintenance Manual 

temporary revision referenced in the Piaggio 

Aero Industries S.p.A. Mandatory Service 

Bulletin SB–80–0220, dated August 8, 2006. 

Other FAA AD Provisions 

(g) The following provisions also apply to 

this AD: 

(1) Alternative Methods of Compliance 

(AMOCs): The Manager, Standards Staff, 

FAA, ATTN: Sarjapur Nagarajan, Aerospace 

Engineer, FAA, Small Airplane Directorate, 

901 Locust, Room 301, Kansas City, Missouri 

64106; telephone: (816) 329–4145; fax: (816) 

329–4090, has the authority to approve 

AMOCs for this AD, if requested using the 

procedures found in 14 CFR 39.19. Before 

using any approved AMOC on any airplane 

to which the AMOC applies, notify your 

appropriate principal inspector (PI) in the 

FAA Flight Standards District Office (FSDO), 

or lacking a PI, your local FSDO. 

(2) Airworthy Product: For any requirement 

in this AD to obtain corrective actions from 

a manufacturer or other source, use these 

actions if they are FAA-approved. Corrective 

actions are considered FAA-approved if they 

are approved by the State of Design Authority 

(or their delegated agent). You are required 

to assure the product is airworthy before it 

is returned to service. 

(3) Reporting Requirements: For any 

reporting requirement in this AD, under the 

provisions of the Paperwork Reduction Act 

(44 U.S.C. 3501 et.seq.), the Office of 

Management and Budget (OMB) has 

approved the information collection 

requirements and has assigned OMB Control 

Number 2120–0056. 

Related Information 

(h) Refer to MCAI EASA AD No. 2007–

0031, dated February 9, 2007; and Piaggio 

Aero Industries S.p.A. Mandatory SB–80–

0220, dated August 8, 2006, for related 

information. 

Issued in Kansas City, Missouri, on April 

4, 2007. 

David R. Showers, 

Acting Manager, Small Airplane Directorate, 

Aircraft Certification Service. 

[FR Doc. E7–6721 Filed 4–10–07; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF DEFENSE 

Office of the Secretary 

32 CFR Part 232 

[DOD–2006–OS–0216] 

RIN 0790–AI20 

Limitations on Terms of Consumer 

Credit Extended to Service Members 

and Dependents 

AGENCY: Department of Defense (DoD). 

ACTION: Notice of proposed rulemaking 

and request for comment. 

SUMMARY: The Department of Defense 

(the Department or DoD) proposes to 

amend our regulations by adding a new 

part to implement the consumer 

protections covered by Public Law 109–

364, the John Warner National Defense 

Authorization Act for Fiscal Year 2007, 

section 670, ‘‘Limitations on Terms of 

Consumer Credit Extended to Service 

Members and Dependents’’ (October 17, 

2006). Section 670 of Public Law 109–

364 created 10 U.S.C. 987 and requires 

the Secretary of Defense to prescribe 

regulations to carry out the new section. 

The proposed regulation is intended to 

regulate the terms of consumer credit 

extended by creditors to active duty 

service members and their dependents. 

DATES: Comments must be received no 

later than June 11, 2007. 

ADDRESSES: You may submit comments, 

identified by docket number and or 

Regulatory Information Number (RIN) 

and title, by any of the following 

methods: 

—Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

—Mail: Federal Docket Management 

System Office, 1160 Defense 

Pentagon, Washington, DC 20301–

1160. 

Instructions: All submissions received 

must include the agency name and 

docket number or RIN for this Federal 

Register document. The general policy 

for comments and other submissions 

from members of the public is to make 

these submissions available for public 

viewing on the Internet at http:// 

regulations.gov as they are received 

without change, including any personal 

identifiers or contact information. 

FOR FURTHER INFORMATION CONTACT: Mr. 

George Schaefer, (703) 588–0876. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Today’s joint force combat operations 

require highly trained, experienced and 

motivated troops. We are fortunate that 

the All Volunteer Force of today is 

comprised of individuals who fit the 

stringent requirements needed for 

success on the battlefield. The military 

has seen a lot of changes since it became 

an All Volunteer Force in 1973. The 

technological advances over the ensuing 

34 years have made remarkable 

transformations to the capabilities of the 

Armed Forces. 

These advances would not have been 

as easily attained if it were not for the 

All Volunteer Force. The members of 

this force have higher levels of aptitude, 

stay in the military longer, and as a 

consequence, perform better than their 

conscript predecessors. During the 

Vietnam era draft, 90 percent of 


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conscripts quit after their initial twoyear hitch, whereas retention of 

volunteers is five-times better today—

about half remain after their initial 

(four-year) military service obligation. 

Said another way, two thirds of the 

military was serving in its first two 

years of service prior to 1973, where as 

today, the number is about one-fourth. 

Today’s Service members are still 

younger than the population as a whole, 

with 46 percent 25 years old or less. 

Thirty eight percent of these young 

Service members 25 years old or less are 

married and 21 percent of them have 

children. This is compared with 

approximately 13 percent of their 

contemporaries in the U.S. population 

18 through 24 who are married (2000 

Census). The majority of recruits come 

to the military from High School, with 

little financial literacy education. 

The initial indoctrination provided to 

Service members is critical, providing 

basic requirements for their professional 

responsibilities and to successfully 

adjust to military life. Part of this 

training is in personal finance which is 

seen as an integral part of their 

responsibilities. The Department 

continues to provide them messages to 

save, invest and manage their money 

wisely throughout their career. 

Service members and their families 

are experiencing the sixth year of the 

Global War on Terror. The Department 

views the support provided to military 

families as essential to sustaining force 

readiness and military capability. From 

this perspective, it is not sufficient for 

the Department to train Service 

members on how best to use their 

financial resources—financial 

protections are an important part of 

fulfilling the Department’s compact 

with Service members and their 

families. 

Social Compact 

The Department of Defense (DoD) 

believes that assisting Service members 

with their family needs is essential to 

maintaining a stable, motivated All 

Volunteer Force. As part of the 

President’s February 2001 call to 

improve the quality of life for Service 

members and their families, the 

Department of Defense developed a 

social compact reflecting the 

Department’s commitment to caring for 

their needs as a result of their 

commitment to serving the Nation. The 

social compact involved a bottom-up 

review of the quality-of-life support 

provided by the Department, which 

articulated the linkage between qualityof-life programs as a human capital 

management tool and the strategic goal 

of the Department—military readiness. 

The social compact is manifested in 

the programs the Department of Defense 

provides to support the quality of life of 

Service members and their families. 

This social compact includes personal 

finances as an integral part of their 

quality of life. The Department equates 

financial readiness with mission 

readiness. When asked in 2005 on a 

blind survey to rate the stressors in their 

lives, Service members (as a group) 

rated finances as a more significant 

stressor than deployments, health 

concerns, life events, and personal 

relationships. They only rated work and 

career concerns as a higher stressor in 

their lives. As part of the social compact 

for financial readiness, the Department 

established a strategic plan to: 

• Reduce the stressors related to 

financial problems—the stress 

associated with out of control debt can 

impact the performance of Service 

members and have major negative 

impact on family quality of life. 

• Increase savings—establishes 

personal and family goals, motivates 

Service members to control their 

finances and live within their means. 

• Decrease dependence on unsecured 

debt—reduces the stressors and 

vulnerabilities associated with living 

from paycheck to paycheck. 

• Decrease the prevalence of 

predatory practices—provide protection 

from financial practices that seek to 

deceive Service members or take 

advantage of them at a time of 

vulnerability. 

The Department has taken action on 

obtaining these outcomes by providing 

financial awareness, education and 

counseling programs; by advocating the 

marketplace deliver beneficial products 

and services; and by advocating for the 

protection for Service members and 

their families from harmful products 

and practices. 

Financial Education 

The Military Services are expected to 

provide instruction and information to 

fulfill the needs of Service members and 

their families. To this end, the 

Department established policy in 

November 2004: DoD Instruction 

1342.27, Personal Financial 

Management Programs for Service 

Member. 

As outlined in the Government 

Accountability Office (GAO) Report 05–

348, the Military Services have their 

own programs for training first-term 

Service members on the basics of 

personal finance. These programs vary 

in terms of venue and duration; 

however, all Military Service programs 

must cover the same core topics to the 

level of competency necessary for first 

term Service members to apply basic 

financial principles to everyday life 

situations. 

The Department has tracked the 

ability of Service members to pay their 

bills on time as a reflection of their 

competency and ability to apply basic 

financial principles. Since 2002, self 

reported assessments through survey 

data have shown Service members are 

paying better attention to keeping up 

with their monthly payments. 

To assist the Military Services in 

delivering financial messages, the 

Department established the Financial 

Readiness Campaign in May 2003, 

which has gathered the support of 26 

nonprofit organizations and Federal 

agencies. In the past three years, Service 

members have benefited from the 

materials and assistance from over 20 

active partnerships. These partnerships 

are on-going and have been developed 

to allow the Military Services to choose 

which partner programs can best 

supplement the education, awareness 

and counseling services they provide. 

The materials and services are not 

mandatory and do not take the place of 

the programs offered by the Military 

Services. 

Aspects of predatory lending practices 

are covered as topics in initial financial 

education training and in refresher 

courses offered at the military 

installations. The Military Services 

provide over 10,000 classes and train 

approximately 24 percent of the force, 

as well as nearly 20,000 family members 

on an annual basis. These classes are 

primarily conducted on military 

installations located in the United 

States. 

In addition to these classes, Financial 

Readiness Campaign partner 

organizations conduct over a thousand 

classes for informing over 60,000 

Service members and family members 

per year. These classes are primarily 

provided by the staff of banks and credit 

unions located on military installations 

(military banks and defense credit 

unions). These institutions provide 

these classes as part of their 

responsibilities outlined in the DoD 

Financial Management Regulation. 

Other organizations involved include 

local Credit Counseling Agencies, State 

financial regulatory agencies, the 

InCharge Institute and the NASD 

Foundation. 

The Military Service financial 

educators, along with partner 

organizations, also distributed over 

200,000 brochures and pamphlets, with 

the Military Services and Federal Trade 

Commission the primary provider of 

these products. In addition, Military 

Money Magazine has run several 


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articles, to include two cover article 

editions on predatory lending. The free 

distribution of the magazine is through 

military commissaries, family support 

centers, other service agencies on the 

installation, residents on the military 

installations and home addresses off the 

installation upon request. The 

distribution is approximately 250,000 

per quarter. 

Lending Practices Considered Predatory 

As identified in GAO Report 05–349, 

DOD’s Tools for Curbing the Use and 

Effects of Predatory Lending Not Fully 

Utilized, April 2005, the review of 

practices that are considered predatory 

has not benefited from a consistent 

definition that has been universally 

applied. However, sources studying the 

issue of predatory lending have focused 

on similar characteristics. GAO Report 

04–280, Federal and State Agencies 

Face Challenges in Combating Predatory 

Lending, January 2004, said the 

following: 

While there is no uniformly accepted 

definition of predatory lending, a number of 

practices are widely acknowledged to be 

predatory. These include, among other 

things, charging excessive fees and interest 

rates, lending without regard to borrowers’

ability to repay, refinancing borrowers’ loans 

repeatedly over a short period of time 

without any economic gain for the borrower, 

and committing outright fraud or deception. 

This definition has been reiterated in 

the FDIC Office of the Inspector General 

Audit Report 06–0111, June 2006, 

which stated: 

Characteristics associated with predatory 

lending include, but are not limited to (1) 

abusive collection actions, (2) balloon 

payments with unrealistic repayment terms, 

(3) equity stripping associated with repeat 

financing and excessive fees, and (4) 

excessive interest rates that may involve 

steering a borrower to a higher-cost loan. 

These same characteristics were also 

identified in the DoD Report to Congress 

on Predatory Lending Practices Directed 

at Members of the Armed Forces and 

Their Dependents, August 9, 2006: 

Predatory lending in the small loan market 

is generally considered to include one or 

more of the following characteristics: High 

interest rates and fees; little or no responsible 

underwriting; loan flipping or repeat 

renewals that ensure profit without 

significantly paying down principal; loan 

packing with high cost ancillary products 

whose cost is not included in computing 

interest rates; a loan structure or terms that 

transform these loans into the equivalent of 

highly secured transactions; fraud or 

deception; waiver of meaningful legal 

redress; or operation outside of state usury or 

small loan protection law or regulation. The 

effect of the practices include whether the 

loan terms or practices listed above strip 

earnings or savings from the borrower; place 

the borrower’s key assets at undue risk; do 

not help the borrower resolve their financial 

shortfall; trap the borrower in a cycle of debt; 

and leave the borrower in worse financial 

shape than when they initially contacted the 

lender. 

While the Report to Congress provides 

a more expansive definition, there are 

several commonalities between the 

definitions listed above: 

—Lending without regard of the 

borrowers ability to repay; 

—Excessive fees and excessive interest 

rates; 

—Balloon payments with unrealistic 

repayment terms; 

—Wealth stripping associated with 

repeat rollovers/financing; and 

—Fraud and deception. 

The Department started collecting 

information on high cost lending in 

2004 as part of the Defense Manpower 

and Data Center annual surveys of 

active duty Service members. The 

survey requested input on payday loans, 

rent-to-own, refund anticipation loans 

and vehicle title loans. GAO Report 05–

359 focused on these four practices and 

obtained feedback from ‘‘command 

leaders, [Personal Financial 

Management] PFM program managers, 

command financial counselors, legal 

assistance attorneys, senior 

noncommissioned officers (pay grades 

E8 to E9), chaplains, and staff from the 

military relief/aid societies,’’ concerning 

these practices. Input from these 

individuals, among others was that 

‘‘The extent to which active duty 

Service members use consumer loans 

considered to be predatory in nature 

and the effects of such borrowing are 

unknown, but many sources suggest that 

providers of such loans may be targeting 

Service members.’’

The Report to Congress reviewed five 

products (payday loans, vehicle-title 

loans, rent-to-own, refund anticipation 

loans and military installment loans) 

identified by installation-level financial 

counselors (employed as PFM program 

managers and employed by the Military 

Aid Societies) and legal assistance 

attorneys who regularly counsel service 

members on indebtedness issues. When 

compared against the common 

characteristics listed above, the five 

products reviewed in the Report to 

Congress measure up somewhat 

differently: 

Lending product 

Without regard 

for borrowers 

ability to repay 

Excessive fees 

and interest 

Unrealistic payment schedule 

Repeated 

rollover/ 

refinancing 

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

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

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

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

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

A major concern of the Department 

has been the debt trap some forms of 

credit can present for Service members 

and their families already burdened 

with debt and recurring bills. The 

combination of little to no regard for the 

borrower’s ability to repay the loan, 

unrealistic payment schedule, high fees 

and interest and the opportunity to 

rollover the loan instead of repaying it, 

can create a cycle of debt for financially 

overburdened Service members and 

their families. 

Consumer groups, news media, and 

academics have chronicled concerns 

about payday loans and the propensity 

for this lending practice to create a cycle 

of debt. For example, M. Flannery and 

K. Smolyk state the following in their 

June 2005 FDIC Financial Research 

Working Paper No. 2005–09: 

Although as economists we find it hard to 

define what level of use is excessive, there 

seems little doubt that the payday advance as 

presently structured is unlikely to help 

people regain control of their finances if they 

start with serious problems. 

Likewise, vehicle title loans are 

similarly structured, with potentially 

similar results. According to a 

November 2005 report by the Consumer 

Federation of America, vehicle title 

loans are generally made for 30 days 

with high interest/fee structures 

(average of 295 APR). Limits on title 

loans vary by State concerning interest 

rates, duration, rollover allowances and 

rules on repossessing the vehicle. Only 

four states cap interest rates at less than 

100% APR. In many states these loans 

can be rolled over by the borrower 


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several times if the borrower is unable 

to pay the principal and interest when 

due. If not paid or rolled over, many 

states allow the creditor to repossess the 

vehicle and in some states the borrower 

is not entitled to any portion of the 

proceeds of the vehicle sale. Loan 

amounts average 55 percent of the value 

of the vehicle. 

Rent-to-own, refund anticipation 

loans and some military installment 

loans present products with high fees 

and interest. Rent-to-own, which is not 

covered as credit under the Truth-inLending Act (TILA), can represent an 

expensive alternative to credit when 

used as a means of purchasing an item. 

Military installment loans (an 

installment loan marketed primarily or 

exclusively to the military) can 

represent a high cost over the duration 

of the loan, particularly when other non 

TILA fees and charges are added to the 

interest rate. Tax refund anticipation 

loans also cost Service members and 

their families high fees when they can 

easily obtain rapid returns through 

electronic filing with the assistance of 

their installation legal assistance office. 

Refund anticipation loans (RALs) 

provide a limited time advantage 

(approximately 10 day reduction in the 

time required to receive a tax return) in 

comparison to the cost involved ($39–

$100). As a consequence, the annual 

percentage rate for this credit can be 

triple digit. A study by Gregory 

Elliehausen of the Credit Research 

Center (CRC) (Monograph #37, April 

2005) showed that more individuals 

below 35 years old use RALs (61 

percent) as compared to the percentage 

under 35 years old who head 

households (28.6 percent). Seventy nine 

percent of Service members are age 35 

or below. 

The rationale for a borrower wanting 

to obtain a RAL vary; however, the CRC 

study showed that 41 percent of 

borrowers obtaining RALs did so to pay 

bills, 21 percent due to unexpected 

expenditures, 15 percent to make 

purchases, 15 percent because of 

impatience and 7 percent for other 

reasons. Less than one percent said they 

obtained a RAL to pay for tax 

preparation. Through the Armed Forces 

Tax Council, in collaboration with the 

IRS, Volunteer Income Tax Assistance 

(VITA) sites are located on all active 

duty military installations to assist 

Service members and their families with 

preparation and electronic filing of their 

tax returns. 

As with other forms of short term high 

cost credit, the Department would prefer 

Service members and their families to 

consider low cost alternatives to resolve 

their financial crisis with the 

perspective that they should establish a 

more solid footing for their personal 

finances. The CRC study showed similar 

patterns of use of credit and debt burden 

between users of RALs and payday 

loans. Additionally, through education 

the Department attempts to persuade 

Service members that planning is an 

important part of managing finances, 

and a high cost 10 day loan does not 

reinforce this lesson. 

The five products reviewed in the 

Report to Congress represent two kinds 

of financial problems for Service 

members and their families: Those 

products that contribute to a cycle of 

debt (payday and vehicle title loans) 

and those products that can cost the 

military consumer high fees and interest 

costs (rent-to-own, installment loans 

and refund anticipation loans). Cycle of 

debt represents a more significant 

concern to the Department than the high 

cost of credit. 

Alternatives 

The Department would prefer Service 

members and their families who 

experience financial duress seek out the 

alternatives available through Military 

Aid Societies, military banks and 

defense credit unions rather than credit 

products that would more likely mire 

them in a cycle of debt. These 

institutions have established programs 

and products designed to help Service 

members and their families resolve their 

financial crises, rebuild their credit and 

establish savings. 

The Military Aid Societies are strong 

advocates for limiting the cost 

associated with credit and for creditors 

to develop alternative products for 

Service members who cannot otherwise 

qualify for loans. Within their own 

resources they provided $87.3 million 

in no cost loans and grants to Service 

members and their families in 2005. 

These funds were provided for 

emergencies and essentials, such as 

rent, food, and utilities. 

Banks and credit unions located on 

military installations also understand 

the need to provide products and 

services that can help those who 

mishandle their finances and who may 

need remedial assistance. A review of 

on-base financial institutions surfaced 

24 programs on 51 military installations 

in the U.S. providing alternative small 

loan products designed to help Service 

members and their families to recover 

from their financial problems. These 

financial institutions supplement the 

emergency funding made available by 

the nonprofit Military Aid Societies that 

provide grants and no-interest loans to 

needy Service members and families. 

These banks and credit unions 

provide low denomination loans at 

reasonable annual percentage rates 

designed to assist their members who 

need to get out of high cost credit and 

into more traditional lending products. 

Financial counseling and education are 

often prerequisites for the short term 

loan and some institutions have 

attached a requirement to develop 

savings as part of the loan. 

Many of these military banks and 

credit unions use their products and 

services to maintain a watchful eye over 

their members to ensure they do not 

abuse services designed to assist them, 

such as overdraft protection, which if 

used on a chronic basis, can become 

very expensive and propel someone 

already overextended into a deeper 

spiral of debt. Representatives of the 

Association of Military Banks of 

America had an opportunity to 

showcase their alternative small loan 

products at a FDIC Conference held in 

December of 2006. FDIC hosted this 

conference to spotlight the need to 

develop more of these types of products 

for Service members and their families 

and several banks and credit unions 

described above that currently provide 

such favorable credit to Service 

members participated in the conference. 

Efforts To Curb the Prevalence and 

Impact of Predatory Loans 

The Department has found that it has 

a small window of opportunity to 

inform and convince young Service 

families of what may constitute a 

beneficial product that can fit their 

circumstances, particularly when they 

receive many messages to the contrary. 

Nonetheless, the Department has 

attempted to use the processes and 

resources available within the 

Department to curb the prevalence of 

high cost short term lenders, 

particularly those that can contribute to 

a spiral of debt. 

Predatory lenders have seldom been 

placed off-limits, primarily because the 

process associated with placing 

commercial entities off-limits, through 

the review and recommendations of the 

Armed Forces Disciplinary Control 

Board (AFDCB), is not well suited to 

this purpose. The AFDCB, covered by 

Joint Army Regulation 190–24, is 

designed to make businesses outside of 

military installations aware that their 

practices cause morale and discipline 

concerns and to offer these businesses 

an opportunity to modify their practices 

to preclude being placed off-limits. 

When the commercial entity refuses to 

comply, the AFDCB recommends to the 

regional command authority to place the 

business off-limits for all Service 


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members within the region (regardless 

of Service). 

Normally concerns are raised when a 

business has demonstrated practices 

that violate state or federal statute, and 

remediation involves the business 

curtailing these illegal practices. In the 

case of the loan products listed above, 

businesses usually offer their services 

within the legal limits. Since the 

AFDCB takes on businesses one at a 

time, bringing a lender under scrutiny 

has been difficult if the lender is 

complying with the same rules as its 

competitors. Additionally, the 

magnitude of mediating with the 

number of outlets surrounding military 

installations has exacerbated the 

process. As illustrated in research by 

Professor Steven M. Graves and 

Professor Christopher L. Peterson 

published in the Ohio State Law 

Journal, Volume 66, Number 4, 2005, 

‘‘Predatory Lending and the Military: 

The Law and Geography of ‘Payday’

Loans in Military Towns,’’ there are 

large numbers of payday lenders which 

can be found in communities around 

military installations. 

Also, without appropriate authority, 

commanders and AFDCBs have 

difficulty citing lenders offering payday, 

auto title and refund anticipation loans 

as needing to take remedial action. In 

States that authorize these types of 

loans, AFDCBs must establish their own 

local guidelines in addition to the 

provisions of Federal and State law, 

ensure all affected businesses are aware 

of these new rules, and then require 

these businesses to comply. 

The Department has considered 

establishing guidelines that would 

ameliorate the concerns posed by 

lenders characterized above, but 

establishing these policies within DoD 

poses legal problems and raises the 

potential for litigation against the 

Department. Prior to the Talent-Nelson 

Amendment of the John Warner 

National Defense Authorization Act of 

2007 (10 U.S.C. 987), there has not been 

any established authority for DoD to 

make rules governing credit offered by 

off-base private businesses. Commercial 

businesses offering these loans could 

view DoD rules as restrictions outside of 

the existing statutes and policies 

governing these entities and burdens 

provided without sufficient statutory 

authority to establish rules governing 

their businesses. Without sufficient 

authority, the Department would have 

difficulty making ‘‘off limits’’

declarations enforceable and could lead 

to legal action. 

As State governments have 

considered restricting or controlling 

payday lending, the Department has 

provided information concerning this 

issue and has extended its support for 

these measures to the extent that these 

provisions protect Service members and 

their families. Internet lenders claim 

jurisdiction in States with lax 

protections and unlimited rates and 

often attempt to bypass the State credit, 

usury or payday loan laws of the State 

where the borrower receives the loan. 

State regulators have successfully 

enforced home-State law against 

Internet payday lenders making loans to 

consumers in their States in Colorado, 

New York, Massachusetts, Kansas, 

Pennsylvania, and the District of 

Columbia. 

As stated above, the Department will 

continue to provide education, 

awareness and counseling programs to 

influence skills and attitudes towards 

managing personal resources wisely. 

There still remains a gap between the 

opportunity to influence a young 

Service member or family concerning 

the best way to manage their finances, 

and the level of experience and 

capability necessary to be successful. 

The Department has a limited 

opportunity to impress upon these 

young people the importance of 

managing their resources, and does not 

have sufficient control over the behavior 

of Service members and their families to 

preclude them taking on financial risks 

that can impact not only their quality of 

life, but also the mission performance of 

Service members. 

The Department will continue to send 

Service members messages that they and 

their families need to manage their 

resources wisely for their own benefit 

and to maintain personal readiness. The 

Department’s call for responsibility 

competes with market messages from 

the sub-prime financial industry to get 

cash now for purchases, vacations, and 

paying bills. Their marketing stresses 

the ease and convenience of obtaining 

these loans, with virtual guarantee of 

approval. These messages can be 

particularly alluring to Service members 

and families already over burdened with 

bills and debts. A 2006 survey 

accomplished by the Consumer Credit 

Research Foundation stated that the 

primary reason Service members choose 

payday loans is because they are 

convenient. Certainly, obtaining ‘‘fast 

cash’’ from a payday lender is far more 

convenient than considering 

uncontrolled debt or addressing 

inherent overspending that creates 

situations where sub-prime loans are 

needed. 

Service members have inherently 

understood that limits on interest rates 

are appropriate, even if these limits 

would decrease the availability of 

credit. When asked in a 2006 survey 

conducted by the Consumer Credit 

Research Foundation if Service 

members strongly/somewhat agree or 

disagree with the statement: ‘‘The 

government should limit the interest 

rates that lenders can charge even if it 

means fewer people will be able to get 

credit,’’ over 74 percent of the Service 

members surveyed agreed with the 

statement (with over 40 percent strongly 

agreeing). Similarly when asked their 

position on the statement ‘‘There is too 

much credit available today,’’ 75 

percent of Service members not using 

payday loans and 63 percent of Service 

members using payday loans agreed 

(with 51 percent of non users strongly 

agreeing). 

‘‘Limitations on Terms of Consumer 

Credit Extended to Service Members 

and Dependents,’’ John Warner National 

Defense Authorization Act for Fiscal 

Year 2007 

After both the Congressional Banking 

and Armed Service Committees 

reviewed the issue of predatory lending 

directed at members of the Armed 

Forces and their dependents, the Armed 

Service Committees included § 670 in 

the John Warner National Defense 

Authorization Act for Fiscal Year 2007. 

The resulting statute, 10 U.S.C. 987, 

directs the Secretary of Defense to 

establish policy to implement the 

provisions of the statute. The Secretary 

is to accomplish the regulation prior to 

October 1, 2007, when the statute goes 

into effect, and to draft the regulation in 

consultation with the Department of 

Treasury, Office of the Comptroller of 

the Currency, Office of Thrift 

Supervision, Board of Governors of the 

Federal Reserve System, Federal Trade 

Commission, Federal Deposit Insurance 

Corporation, and the National Credit 

Union Administration. Specifically, 

section (h)(2) requires the Secretary of 

Defense to define key terms as part of 

developing the regulation: 

‘‘(A) Disclosures required of any 

creditor that extends consumer credit to 

a covered member or dependent of such 

a member. 

(B) The method for calculating the 

applicable annual percentage rate of 

interest on such obligations, in 

accordance with the limit established 

under this section. 

(C) A maximum allowable amount of 

all fees, and the types of fees, associated 

with any such extension of credit, to be 

expressed and disclosed to the borrower 

as a total amount and as a percentage of 

the principal amount of the obligation, 

at the time at which the transaction is 

entered into. 


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(D) Definitions of ‘creditor’ under 

paragraph (5) and ‘consumer credit’

under paragraph (6) of subsection (i), 

consistent with the provisions of this 

section. 

(E) Such other criteria or limitations 

as the Secretary of Defense determines 

appropriate, consistent with the 

provisions of this section.’’

This broad latitude allows the 

Department of Defense to determine the 

scope and impact of the regulation, 

consistent with the provisions of the 

statute. These provisions have been 

established to protect Service members 

and their families from potentially 

abusive lending practices and products. 

The provisions, or terms, of the statute 

provide several limitations on credit 

transactions, and the statute allows the 

Department to focus these limitations on 

areas that create the most concern. 

Through correspondence received 

from numerous creditors and trade 

associations representing creditors, the 

Department has learned of the potential 

unintended consequences of these 

limitations that could potentially 

preclude Service members and their 

families from receiving a multitude of 

credit products not determined as 

harmful. These commenters suggested, 

as a simple way to limit the potential 

unintended consequences of the rule 

and adverse impact on the availability 

of credit for Service members by 

regulated depository institutions and 

their subsidiaries, that the regulations 

include a complete or limited carve-out 

from the ‘‘creditor’’ definition of insured 

depository institutions and their 

subsidiaries. As described in the 

section-by-section description that 

follows, the Department did not 

specifically propose to exclude any 

types of lenders from the regulatory 

definition of ‘‘creditor.’’ The intent of 

the statute is clearly to apply these 

limitations so that their impact is upon 

credit practices evaluated as negative 

without impeding the availability of 

credit that is benign or beneficial to 

Service members and their families. The 

Department is proposing a regulation it 

believes is fully consistent with this 

intent. 

QUESTION 1: However, we seek 

comment on whether the final 

regulation should exclude regulated 

banks, credit unions and savings 

associations and their subsidiaries from 

coverage by the regulation generally, or 

in limited circumstances such as in the 

following circumstances: (1) the 

depository institutions are subject to 

supervision and regulation by a federal 

regulatory agency; (2) the institution 

extends covered ‘‘consumer credit’’; (3) 

the extension of consumer credit by the 

institution is subject to supervisory 

guidance by the federal bank regulatory 

agency that addresses consumer 

protection, disclosure, and safety and 

soundness criteria applicable to such 

lending; and (4) the federal bank 

regulatory agency agrees to act on 

matters referred to it by the Department 

concerning complaints that such 

lending to a covered member may be 

inconsistent with the supervisory 

guidance, applicable law, or is having 

an adverse effect on military readiness. 

Would depository institutions find an 

exclusion that is limited in this manner 

useful? The Department notes that if the 

final regulatory definition includes 

additional limitations on the definition 

of covered ‘‘creditor,’’ it would not be 

precluded from expanding that 

definition in the future as appropriate to 

address new concerns or changed 

circumstances. 

II. Description of the Regulation, By 

Section: 

232.1 and 232.2, Authority, purpose 

and coverage, and Applicability: No 

further descriptions provided other than 

that contained in the regulation. 

232.3, Definitions: 

In drafting a regulation to implement 

the statute, the Department has chosen 

to use the opportunity to define the 

terms ‘‘creditor’’ and ‘‘consumer credit’’

judiciously, having heard from 

numerous groups through comments 

received in response to Federal Register 

notice DoD–2006–OS–0216, solicited 

and unsolicited comments and through 

meetings requested of the Department 

that applying the provision broadly 

would create numerous unintended 

consequences. These unintended 

consequences would have a ‘‘chilling 

effect’’ on the availability of consumer 

credit covered as part of the statute. 

In defining the term creditor, the 

statute provides the following: 

‘‘(5) CREDITOR.—The term ‘creditor’

means a person—

(A) who—

(i) is engaged in the business of 

extending consumer credit; and 

(ii) meets such additional criteria as 

are specified for such purpose in 

regulations prescribed under this 

section; or 

(B) who is an assignee of a person 

described in subparagraph (A) with 

respect to any consumer credit 

extended.’’

Consistent with the statute, the 

proposed regulation defines ‘‘creditor’’

as any person who extends consumer 

credit covered by part 232. For this 

purpose a ‘‘person’’ includes both 

natural persons as well as business 

entities, but would exclude 

governmental entities. Pursuant to the 

Department’s authority to specify 

additional criteria, a person would be a 

creditor only if the person is also a 

‘‘creditor’’ for purposes of the Truth in 

Lending Act. For clarity, the Department 

has implemented the provision covering 

assignees by including a specific 

reference to assignees in each section of 

the regulation that would apply to an 

assignee, in lieu of including assignees 

in the definition of ‘‘creditor.’’ See 

sections 232.4, 232.8 and 232.9. 

The definition of consumer credit 

provided in the statute is as follows: 

‘‘(6) CONSUMER CREDIT.—The term 

‘consumer credit’ has the meaning 

provided for such term in regulations 

prescribed under this section, except 

that such term does not include (A) a 

residential mortgage, or (B) a loan 

procured in the course of purchasing a 

car or other personal property, when 

that loan is offered for the express 

purpose of financing the purchase and 

is secured by the car or personal 

property procured.’’

This proposed regulation seeks to 

address the concerns addressed by 

many institutions and associations that 

corresponded with the Department by 

limiting the scope of the products upon 

which the provisions of the statute 

would apply. It is clearly the intent of 

the statute that consumer credit be 

defined by the Department, as long as it 

does not include the two listed 

exemptions. The definition in this 

proposed regulation clearly excludes 

these two types of loans and focuses on 

three problematic credit products that 

the Department identified in its August 

2006 Report to Congress on the Impact 

of Predatory Lending Practices on 

Members of the Armed Forces and Their 

Dependents: payday loans, vehicle title 

loans, and refund anticipation loans. 

With respect to exclusion of 

‘‘residential mortgages’’ the proposed 

regulation clarifies that the exclusion 

applies to any credit transaction secured 

by an interest in the borrower’s 

dwelling. Thus, home-purchase 

transactions, refinancings, home-equity 

loans, and reverse mortgages would be 

excluded. Home equity lines of credit 

are also excluded. In addition, the 

property need not be the consumer’s 

primary dwelling to qualify for the 

exclusion. A ‘‘dwelling’’ includes any 

residential structure containing one to 

four units, whether or not the structure 

is attached to real property, and would 

also include an individual 

condominium unit, cooperative unit, 

mobile home, and manufactured home. 

The Department’s proposed definition 

of the term ‘‘consumer credit’’ is 

intended to narrow the regulation’s 


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impact to consumer credit products and 

services that are potentially detrimental 

and for which there are DoDrecommended, alternative products or 

services available to Service members 

and their families. DoD believes that a 

narrow definition can prevent 

unintended consequences while 

affording the protections granted by the 

statute. 

In addition to the above criteria, the 

Department intends to use the definition 

of consumer credit to encourage the 

financial services industry to offer 

affordable small loans for Service 

members and their families. 

Payday Loans 

Payday loans have common 

characteristics that make them 

detrimental to a Service member’s 

financial well being and inferior to 

alternative sources of emergency 

support. These characteristics can 

exacerbate a cycle of debt, particularly 

if the borrower is already over-extended 

through the use of other forms of credit. 

The proposed regulation defines 

‘‘Payday loans’’ based on certain 

characteristics, in order to distinguish 

them from other financial products. A 

payday loan is defined as a closed-end 

credit transactions having a term of 91 

days or less, where the amount financed 

does not exceed $2,000. The ‘‘amount 

financed’’ is not defined in this 

regulation, but must be determined 

based on the definition of that term in 

the Federal Reserve Board’s Regulation 

Z, which implements the Truth in 

Lending Act. In addition, the definition 

of ‘‘payday loan’’ is limited to 

transactions where the borrower 

contemporaneously provides a check or 

other payment instrument that the 

creditor agrees to hold, or where the 

borrower contemporaneously authorizes 

the creditor to initiate a debit or debits 

to the covered borrower’s deposit 

account. 

Payday loans, otherwise known as 

deferred presentment loans, are allowed 

in 39 States as a separate credit product 

from other forms of credit regulated by 

Federal or State statute. States 

authorizing these types of loans require 

payday lenders to obtain a license to 

operate within the State. States have 

defined these products and services, 

primarily through the basic process 

used to secure a payday loan, either 

through holding a check or by obtaining 

access to a bank account through 

electronic means. These basic processes 

have been included as part of the 

definition of payday loans in the 

regulation (Section 232.3(c)). Many 

States have also established limits to the 

amount that can be borrowed and the 

duration of the loan as part of the 

authorized activities of lenders licensed 

to offer these products and services. A 

review of State limits for payday loans 

establishes a foundation for the 

definition used in this regulation. 

The majority of States have a 

maximum dollar amount, maximum 

time limits and maximum fees that 

regulate the product. Six States (New 

Mexico, Oregon, Texas, Utah, Wisconsin 

and Wyoming) have no dollar limit on 

the amount that can be loaned, and nine 

States (Alaska, Arizona, Idaho, New 

Mexico, Rhode Island, South Dakota, 

Virginia, Wisconsin and Wyoming) have 

no maximum limit established for the 

duration of a payday loan. Of the States 

with dollar and duration limits, the 

maximum amount loaned is $1,000 

(Idaho and Illinois) and the maximum 

duration of a loan is 180 days (Ohio). 

The average dollar limit is $519 and the 

average duration limit is 46 days. 

Payday loans offered over the internet 

often originate in States with no limits 

on fees or maximum loan amounts. A 

survey of Web sites offering payday 

loans indicates $1,500 as generally the 

maximum amount loaned. A review of 

sites marketing ‘‘Military Payday Loans’’

refer to loans of up to 40 percent of a 

Service member’s take home pay. This 

amount can vary considerably based on 

rank, other entitlements, tax withheld 

and military allotments. For married 

enlisted Service members in the grade of 

E–6 and below (no deductions for taxes 

or other allotments), the proposed limit 

would cover a loan made for 40 percent 

of take home pay. The limits established 

in the definition for payday loans reflect 

the maximum duration and amount 

anticipated for loans based on current 

State practices, to include internet 

payday loans originating from locations 

without limits. QUESTION 2: The 

Department seeks comments concerning 

whether the duration limit and 

monetary limit on the amount of the 

loan included in the definition of 

payday lending creates any unintended 

consequences for other credit products. 

The definition provided in 

232.3(b)(1)(A)(ii) includes the following 

statement: ‘‘This provision does not 

apply to any right of a depository 

institution under statute or common law 

to offset indebtedness against funds on 

deposit in the event of the covered 

borrower’s delinquency or default.’’

This exemption only applies if the 

depository institution has a right of 

offset under State or other applicable 

law. 

As previously stated, the 

Department’s intention is that the 

definition of payday loans does not 

impede creditors providing alternatives 

to payday loans with high fees. The 

Department’s August 2006 report to the 

Congress describes a variety of 

affordable credit products that banks 

and credit unions located on military 

installations offer to members of the 

armed services. Such loans generally 

had annual percentage rates (APRs) for 

Truth in Lending Act purposes of 18% 

or less. Because the loans may be for a 

small dollar amount, any flat fee 

charged by the lender in connection 

with originating the loan could cause 

the Military Annual Percentage Rate 

(MAPR), defined by the proposed 

regulation, to exceed 36% even though 

the interest rate may be much lower. 

Vehicle Title Loans 

The Department believes that vehicle 

title loans meet the proposed definition 

of consumer credit, and that subjecting 

them to the proposed rule is consistent 

with the Department’s intent in 

developing the regulation. The 

definition for ‘‘vehicle title loans’’ limits 

the rule’s coverage to loans of 180 days 

or less. Many States have not 

established statutes overseeing these 

loans. A 2005 survey of States 

conducted by the Consumer Federation 

of America (CFA) found that, of the 16 

States authorizing vehicle-title lending, 

10 require 30 day or one month term 

limits (with authorized renewals or 

extensions), one State allows up to 60 

days (with 6 renewals), one State 

requires installments and four States do 

not establish term limits. QUESTION 3: 

The Department seeks comments as to 

whether the limits established for 

vehicle title loans for duration of the 

loan included as part of the definition 

cause any unintended consequences for 

other credit products. 

Refund Anticipation Loans 

The Department believes that 

covering RALs is consistent with the 

intent of the Department’s proposed 

regulation. RALs can also be defined to 

limit unintended consequences and 

refunds can be provided expeditiously. 

There have been only a few States that 

have developed statutes concerning 

RALs. Connecticut is the only state that 

has established a rate cap, and prohibit 

transactions where the APR exceeds 60 

percent. Other states, such as California, 

Washington, Oregon and Nevada have 

established statutes specifying 

disclosure requirements for RALs. 

The Department is interested in 

ensuring that lenders continue to offer 

responsible, small-dollar loan products 

that meet the credit needs of service 

members and their families. QUESTION 

4: Accordingly, the Department solicits 

comments on regulatory approaches 


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that would encourage creditors to offer 

affordable, small-dollar, short-term 

loans to Service members and their 

dependents. For example, should 

transactions that would otherwise be 

covered as payday loans be exempt 

from coverage under these rules if the 

MAPR is less than 24% MAPR or some 

other rate specified in the rules? Would 

a similar rule be appropriate for vehicletitle loans or tax refund anticipation 

loans? Are there other approaches that 

DoD should consider? 

The definition of MAPR creates a 

distinctive percentage rate that reflects 

the provisions of the statute. The MAPR 

does not include fees imposed for 

unanticipated late payments, default, 

delinquency or a similar occurrence, 

because such fees are imposed as a 

result of contingent events that may 

occur after the loan is consummated. 

Thus, such fees are not included in the 

computation of the maximum 36% 

MAPR cap imposed by these rules. 

QUESTION 5: The Department solicits 

comment on whether there are other 

fees that should be expressly excluded 

for the same reason. 

232.4, Terms of consumer credit 

extended to covered borrowers: This 

section implements the statutory 

prohibition limiting the amount that 

creditors may charge for extensions of 

consumer credit to covered borrowers. 

The proposed rule mirrors the statutory 

language. This section also applies to 

‘‘assignees’’ consistent with the 

statutory definition of ‘‘creditor.’’

232.5, Identification of covered 

borrower: 

The Department has received several 

comments expressing concern over the 

potential difficulty in identifying a 

covered borrower, particularly in light 

of the penalties for failing to provide the 

statutory protections to a covered 

borrower. While DoD recognizes this 

concern, the Department would 

emphasize that identifying the covered 

borrower is only relevant in the context 

of transactions defined by the regulation 

as consumer credit (for payday loans, 

vehicle title loans and refund 

anticipation loans). 

The Department’s intent is to balance 

protections for covered borrowers 

(according to the statute) and 

protections for creditors. The 

Department understands creditors may 

otherwise decline offering beneficial 

credit products to covered borrowers as 

a result of concerns over penalties. To 

achieve an appropriate balance, the 

Department has proposed a safe harbor, 

under which the creditor may require 

the applicant to sign a statement 

declaring whether or not he or she is a 

covered borrower (using the definition 

from the statute). If required by the 

creditor, this declaration provides a 

‘‘safe harbor’’ for the creditor to prevent 

inadvertently violating the statute by 

failing to recognize a covered borrower. 

There is one caveat to this ‘‘safe 

harbor’’ provision. If the loan applicant 

signs a declaration that denies being a 

covered borrower, but the creditor 

obtains documentation as part of the 

credit transaction reflecting that the 

applicant is a covered borrower (such 

as, a current military leave and earning 

statement as proof of employment, or a 

tax filing that takes advantage of a 

specific tax provision designed to 

benefit the military), the applicant’s 

declaration would not create a safe 

harbor for the creditor. In such cases 

creditors should seek to resolve the 

inconsistency, but if they are unable to 

do so, they may avoid any risk of 

noncompliance by treating the applicant 

as a covered borrower based on the 

documentation or by declining to 

extend credit due to the inability to 

verify information provided in the 

borrower’s signed declaration. 

This caveat is being included to 

prevent creditors from using the 

declaration to allow covered borrowers 

to waive their right to the protections 

provided by the regulation. This may 

occur when the creditor recognizes the 

applicant is a covered borrower, as a 

result of the documents presented as 

part of the credit transaction. The intent 

of this caveat is not to hold the creditor 

accountable for false statements made 

by an applicant when there is no 

indication through the credit transaction 

that the applicant is a covered borrower. 

The opposite situation, where an 

applicant claims to be a covered 

borrower without presenting proof of 

his or her status does not require further 

validation by the creditor. However, 

creditors have the option of verifying 

the applicant’s status as a covered 

borrower using several sources of 

information, but they are not required to 

do so. Thus, creditors may request 

applicants to provide proof of their 

current employment and income, for 

example by requesting from service 

members a copy of the most recent 

month’s military leave and earning 

statement. Creditors may also request 

service members or dependents to 

provide a copy of their military 

identification card. 

These sources, however, might not 

always be determinative. For example, 

in some a cases a leave and earnings 

statement might not reflect a recent 

change in the applicant’s active duty 

status. Military identification cards, that 

are the same as identification cards 

carried by members of the active 

component, are issued to members of 

the National Guard and the Reserve 

regardless of their duty status. Hence, 

the proposed regulation states ‘‘[u]pon 

such request, activated members of the 

National Guard or Reserves shall also 

provide a copy of the military orders 

calling the covered member to military 

service and any orders further extending 

military service.’’ This would also be 

the case for their dependents. The 

proposed rule does not provide a safe 

harbor to creditors in the situation 

described in this paragraph. 

It is the Department’s understanding 

that providing proof of employment is a 

prerequisite to receiving a payday loan 

or a vehicle title loan. The military leave 

and earning statement is the document 

that provides validation of employment. 

There are several tax provisions which 

are directed toward assisting the 

military. If the tax preparer includes 

these provisions as part of the tax 

return, the creditor should be made 

aware of this disclosure in order to 

validate the status of the applicant prior 

to processing the application for a 

refund anticipation loan. QUESTION 6: 

The Department would like feedback on 

the creditor’s involvement in tax filing 

aspects of a refund anticipation loan. 

The Department intends to provide 

access to a database to creditors to 

validate the status of an applicant. This 

arrangement is currently available to 

creditors to validate the active duty 

status of Service members as part of 

implementation of benefits authorized 

by the Service Members Civil Relief Act 

(https://www.dmdc.osd.mil/scra/owa/ 

home). The proposed database will 

include the status of covered borrowers 

and can be used to resolve questions 

creditors may have about the status of 

an applicant who denies being a 

covered member and yet presents 

information during the credit 

transaction that is contrary to this 

declaration. In these situations, the 

database would provide the most 

accurate verification of the status of the 

applicant, to include activated members 

of the National Guard and Reserve and 

their dependents. 

QUESTION 7: Since this issue is 

critical to the success of the regulation, 

and also protecting the reputation of the 

creditor, the Department solicits further 

comment on the proposed ‘‘safe harbor’’

concept and the methodology proposed 

to implement the intended balance in 

approach to identification. 

232.6, Mandatory disclosures: 

Section 232.6 describes the 

disclosures that must be provided to 

covered borrowers before they become 

obligated on a consumer credit 

transaction, which includes the new 


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disclosures established under 10 U.S.C. 

987 but also includes disclosures that 

creditors are already required to provide 

pursuant to the Federal Reserve Board’s 

Regulation Z, which implements the 

Truth in Lending Act (TILA). Regulation 

Z contains certain requirements 

pertaining to the format of the TILA 

disclosures for closed-end credit 

transactions, including a requirement 

that they ‘‘shall be grouped together, 

shall be segregated from everything else, 

and shall not contain any information 

not directly related’’ to the disclosures 

required under Regulation Z. The 

Department intends that the disclosures 

required under this proposal be 

provided consistent with the format 

requirements of Regulation Z. 

Accordingly, the covered borrower 

identification statement described in 

§ 232.5 and the disclosures provided 

pursuant to § 232.6(a)(1), (3), and (4) 

should not be interspersed with the 

TILA disclosures. 

The general rule is that disclosures 

required by § 232.6(a)(1), (3), and (4) 

must be provided orally as well as in 

writing. However, in credit transactions 

entered into by mail or on the internet, 

a creditor complies with this 

requirement if the creditor provides 

covered borrowers with a toll-free 

telephone number on or with the 

written disclosures and the creditor 

provides oral disclosures when the 

covered borrower contacts the creditor 

for this purpose. 

As with identification of the covered 

borrower, the Department has received 

several comments about potential 

disparities in disclosures required by 

this regulation as opposed to TILA, as 

well as the difficulty of potentially 

presenting disclosures orally under part 

232 when an offer is made through the 

mail or over the internet. QUESTION 8: 

The Department requests comment on 

whether the proposed rule for providing 

certain disclosures orally adequately 

addresses the compliance difficulties 

associated with the statutory 

requirements for oral disclosures, or 

whether another approach is more 

appropriate. 

As with other aspects of the statute, 

the Department’s intention has been to 

develop a regulation that is true to the 

intent of the statute without creating a 

system that is so burdensome that the 

creditor cannot comply. The 

Department also recognizes the 

potential confusion inherent in 

mandating the disclosure of two annual 

percentage rates (the MAPR required by 

this regulation and the APR required by 

TILA). QUESTION 9: DoD therefore 

seeks comments on this proposed 

requirement and invites suggestions on 

alternative approaches. 

232.7, Preemption: The proposed 

regulation would implement the 

statutory provision. Although revisions 

have been made to the statutory 

language for clarity, no substantive 

change is intended. 

232.8, Limitations: 

Section 232.8(a) implements the 

statutory provision in 10 U.S.C. 

987(e)(1), which prohibits a creditor 

from extending consumer credit to a 

covered borrower in order to roll over, 

renew, or refinance consumer credit that 

was previously extended by the same 

creditor to the same covered borrower. 

The proposed regulation includes a 

limited exception to this prohibition, 

however, to permit workout loans and 

other refinancings that may benefit the 

borrower. QUESTION 10: The 

Department solicits comment on 

whether it can or should adopt this 

approach. 

QUESTION 11: Assuming the final 

rule permits a creditor to roll over, 

renew or refinance credit that it 

previously extended to the same covered 

borrower in limited circumstances, the 

Department solicits comment on 

whether it can and should also adopt a 

rule clarifying that refinancings or 

renewals of a covered loan require new 

disclosures under § 232.6 only when the 

transaction would also be considered a 

new transaction that requires Truth in 

Lending Act disclosures. Whether or not 

new disclosures are required, the 

Department believes that when a 

creditor refinances or renews credit that 

it extended to a covered borrower the 

limitations on rates and terms apply in 

the same manner as they would for the 

original consumer credit transaction. 

In some cases, a consumer might 

become a covered borrower after 

obtaining consumer credit. When 

consumers request to refinance or renew 

a short-term loan, creditors are likely to 

rely on their original determination that 

the consumer is not a covered borrower. 

The Department believes that it would 

be unnecessarily burdensome to impose 

a duty on creditors to make a new 

determination in each transaction given 

that a change in the borrower’s status 

will infrequently occur with short-term 

transactions. Accordingly, the proposed 

rule would not apply when the same 

creditor extends consumer credit to a 

covered borrower to refinance or renew 

an extension of credit that was not 

covered by Part 232 because the 

consumer was not a covered borrower at 

the time of the original transaction. 

QUESTION 12: The Department 

solicits comment on this approach. If 

such transactions were to be covered, 

however, should the disclosures in 

§ 232.6 only be required for transactions 

also deemed to be transactions requiring 

new disclosures under the Truth in 

Lending Act? 

Subparagraph (a)(3) makes it unlawful 

for any creditor to extend consumer 

credit to a covered borrower if the 

‘‘creditor requires the covered borrower 

to submit to arbitration or imposes other 

onerous legal notice provisions.’’ The 

requirement is in accordance with 10 

U.S.C. 987(e)(3). QUESTION 13: The 

Department does not have the specific 

notice provisions or examples to include 

with this regulation and requests 

feedback on particular legal notice 

provisions that should be considered 

onerous. 

Similarly, subparagraph (a)(4) makes 

it unlawful for any creditor to extend 

consumer credit to a covered borrower 

if the ‘‘creditor demands unreasonable 

notice from the covered borrower as a 

condition for legal action.’’ This 

requirement is in accordance with 10 

U.S.C. 987(e)(4), and as with onerous 

legal notice provisions, the Department 

does not have specific unreasonable 

notices or examples to include in the 

regulation. QUESTION 14: Feedback is 

also requested on this provision and 

particular notice requirements that 

should be considered unreasonable. 

Section 232.8(a)(5) provides an 

exemptions to creditors, with respect to 

consumer credit, to use electronic fund 

transfer to repay a consumer credit, 

require direct deposit of the consumer’s 

salary as a condition of eligibility for 

consumer credit, or take a security 

interest in funds deposited after the 

extension of credit in an account 

established in connection with the 

consumer credit transactions that are 

below 36% MAPR. This exemption is 

made with the recognition that this 

exemption must be provided in 

compliance with other applicable 

statutes governing the use of electronic 

fund transfers, savings and direct 

deposit of consumer’s salary. The 

Department believes the flexibility 

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

may allow the Department the authority 

to provide this exemption to facilitate 

creditors to make alternative loans 

designed to assist covered borrowers 

with financial recovery. The Department 

believes providing this opportunity is 

important in fulfilling the Department’s 

intended purpose of encouraging 

creditors to provide alternative loan 

products. QUESTION 15: The 

Department solicits comments on 

whether it can or should adopt this 

proposed exemption. 

Section 8(a)(7) prohibits creditors 

from charging a prepayment penalty to 


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covered borrowers. The proposed rule 

does not define what constitutes a 

prepayment penalty, and the 

Department expects creditors to rely on 

existing state and federal laws, as 

applicable. QUESTION 16: Comment is 

specifically solicited on this approach. 

232.9, Penalties and remedies: 

This provision incorporates the 

penalties and enforcement provisions 

contained in the statute. Section 9 

provides, among other things, that any 

credit agreement subject to the 

regulation which fails to comply with 

this regulation is void from inception. It 

further provides that a creditor or 

assignee who knowingly violates the 

regulation shall be subject to certain 

criminal penalties. 

The statute, however, does not 

provide explicitly for enforcement of 

these rules beyond the provisions 

described above. The Department 

understands that the federal bank, thrift 

and credit union regulatory agencies 

have authority—derived from federal 

law unique to federally-regulated 

depository institutions—to enforce these 

rules with respect to the institutions 

that they supervise. However, the 

Department notes that this authority 

extends to a narrow category of 

depository institutions that it proposes 

to cover as ‘‘creditors’’ (See Question 1 

above), but it does not extend to other 

creditors, such as nonbank lenders, that 

would also be covered creditors and that 

may be most likely to provide the types 

of consumer credit restricted by these 

rules. The Department is concerned that 

reliance solely on private litigation or 

criminal prosecution with respect to 

these other creditors may be insufficient 

to ensure uniform compliance with 

these rules with respect to all creditors. 

QUESTION 17: Comment is requested 

on all aspects of these issues, and on 

how to ensure uniform implementation 

of, and compliance with, the statute by 

creditors not subject to oversight by the 

federal bank, thrift, and credit union 

regulatory agencies. 

232.10, Effective date and transition: 

The comment period for this proposal 

is 60 days. The Department intends to 

review the comments in a timely 

manner in order to propose and publish 

final rules on or before September 1, 

2007, which is 30 days before the rules 

would become effective on October 1, 

2007. QUESTION 18: Comment is 

solicited on the proposed timing for the 

publication of final rules. In particular, 

the Department requests comment on 

the ability of covered creditors to 

comply with the proposed rules by 

October 1 in light of the specific credit 

products that would be covered by the 

rules. 

Statutory Certification 

Executive Order 12866, ‘‘Regulatory 

Planning and Review’’

It has been determined that 32 CFR 

part 232 is not an economically 

significant regulatory action. The rule 

does not: 

(1) Have an annual effect to the 

economy of $100 million or more or 

adversely affect in a material way the 

economy; a section of the economy; 

productivity; competition; jobs; the 

environment; public health or safety; or 

State, local, or tribal governments or 

communities; 

(2) Create a serious inconsistency or 

otherwise interfere with an action taken 

or planned by another Agency; 

(3) Materially alter the budgetary 

impact of entitlements, grants, user fees, 

or loan programs, or the rights and 

obligations of recipients thereof; or 

(4) Raise novel legal or policy issues 

arising out of legal mandates, the 

President’s priorities, or the principles 

set forth in this Executive Order. 

Nevertheless, the proposed regulation 

was submitted to the Office of 

Management and Budget for review 

under other provisions of Executive 

Order 12866 as a significant regulatory 

action. 

Unfunded Mandates Reform Act (Sec. 

202, Pub. L. 104–4) 

It has been certified that this rule does 

not contain a Federal mandate that may 

result in the expenditure by State, local 

and tribal governments, in aggregate, or 

by the private sector, of $100 million or 

more in any one year. 

Public Law 96–354, ‘‘Regulatory 

Flexibility Act’’ (5 U.S.C. 601) 

It has been certified that this rule is 

not subject to the Regulatory Flexibility 

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

if promulgated, have a significant 

economic impact on a substantial 

number of small entities. The North 

American Industrial Classification 

(NAIC) for the impacted businesses is 

522390—‘‘other financial activities 

related to credit intermediation.’’

According to the 2002 Economic 

Census, there are approximately 5,205 

small businesses related to this 

classification, with 3,000 of these small 

businesses having less than 5 

employees. These 5,205 businesses 

represent a portion of the 51,725 

potential respondents cited in the 

Paperwork Reduction Act evaluation. 

The limitations and disclosures posed 

by this part impact a small percentage 

of the market served by the industries 

covered by this part. For example 

according to the payday lending trade 

association, Service members and their 

dependents represent approximately 

1–2 percent of the payday lending 

market. Thus there is not a significant 

economic impact on a substantial 

number of small entities. 

Public Law 96–511, ‘‘Paperwork 

Reduction Act’’ (44 U.S.C. Chapter 35) 

Section 232.6 of this proposed rule 

contains information collection 

requirements. DoD has submitted the 

following proposal to OMB under the 

provisions of the Paperwork Reduction 

Act (44 U.S.C. Chapter 35). Comments 

are invited on: (a) Whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of DoD, including whether the 

information will have practical utility; 

(b) the accuracy of the estimate of the 

burden of the proposed information 

collection; (c) ways to enhance the 

quality, utility, and clarity of the 

information to be collected; and (d) 

ways to minimize the burden of the 

information collection on respondents, 

including the use of automated 

collection techniques or other forms of 

information technology. 

Title: Mandatory Loan Disclosures as 

Part of Limitations on Terms of 

Consumer Credit Extended to Service 

Members and Their Dependents. 

Type of Request: New requirement. 

Number of Respondents: 51,725. 

Responses per Respondent: 1 per 

respondent. 

Annual Responses: 1,219,035. 

Average Burden per Response: 2–2.5 

minutes, plus one business day to revise 

processes and two business days to 

revise applicable Web sites. 

Annual Burden Hours: 182,105. 

Needs and Uses: With respect to any 

extension of consumer credit (including 

any consumer credit originated or 

extended through the Internet) to a 

covered borrower, a creditor shall 

provide to the member or dependent the 

following information clearly and 

conspicuously before consummation of 

the consumer credit transaction: 

(1) The Military Annual Percentage 

Rate (MAPR) applicable to the extension 

of consumer credit, and the total dollar 

amount of all charges included in the 

MAPR. 

(3) A clear description of the payment 

obligation of the covered member or 

dependent, as applicable. A payment 

schedule provided pursuant to 

subsection (2) satisfies this requirement. 

(4) A statement that ‘‘Federal law 

provides important protections to active 

duty members of the Armed Forces and 

their dependents. Members of the 

Armed Forces and their dependents 

may be able to obtain financial 


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assistance from Army Emergency Relief, 

Navy and Marine Corps Relief Society, 

the Air Force Aid Society, or Coast 

Guard Mutual Aid. Members of the 

Armed Forces and their family members 

may request free legal advice regarding 

an application for credit from a service 

legal assistance office or financial 

counseling from a consumer credit 

counselor.’’

The creditor shall provide the 

disclosures in writing in a form the 

covered borrower can keep. The creditor 

also shall provide the required 

disclosures orally. In mail and internet 

transactions, the creditor satisfies this 

requirement by providing a toll-free 

telephone number on or with the 

written disclosures that consumers may 

use to obtain oral disclosures. 

Affected Public: Creditors making 

payday loans, vehicle title loans and 

refund anticipation loans. 

Frequency: One for each loan 

transaction, which is equal to an 

occasional frequency . 

Respondent’s Obligation: Mandatory. 

Written comments and 

recommendations on the proposed 

information collection should be sent to 

the Office of Management and Budget, 

Desk Officer for the Department of 

Defense, Room 10235, New Executive 

Office Building, Washington, DC 20503, 

fax number: (202) 395–6974 with a copy 

to the Office of the Under Secretary of 

Defense for Personnel and Readiness 

(MC&FP), DoD State Liaison Office, 

Attn: Mr. George Schaefer, 4000 Defense 

Pentagon, Washington, DC 20301–4000, 

telephone (703) 588–0876. Comments 

can be received from 30 to 60 days after 

the date of this notice, but comments to 

OMB will be most useful if received by 

OMB within 30 days after the date of 

this notice. 

You may also submit comments, 

identified by docket number and title, 

by the following method: 

Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Instructions: All submissions received 

must include the agency name, docket 

number and title for this Federal 

Register document. The general policy 

for comments and other submissions 

from members of the public is to make 

these submissions available for public 

viewing on the Internet at http:// 

www.regulations.gov as they are 

received without change, including any 

personal identifiers or contact 

information. 

To request more information on this 

proposed information collection or to 

obtain a copy of the proposal and 

associated collection instruments, 

please write to the Office of the Office 

of the Under Secretary of Defense for 

Personnel and Readiness (MC&FP), DoD 

State Liaison Office, Attn: Mr. George 

Schaefer, 4000 Defense Pentagon, 

Washington, DC 20301–4000, or 

telephone Mr. Schaefer at (703) 588–

0876. 

Executive Order 13132 Federalism 

Executive Order 13132 requires that 

Executive departments and agencies 

identify regulatory actions that have 

significant federalism implications. A 

regulation has federalism implications if 

it has substantial direct effects on the 

States, on the relationship or 

distribution of power between the 

Federal Government and the States, or 

on the distribution of power and 

responsibilities among various levels of 

government. 

The provisions of this part, as 

required by 10 U.S.C. 987, overrides 

State statutes inconsistent with this part 

to the extent that these provisions 

provide different protections for covered 

borrowers than those provided to 

residents of that State. As discussed in 

the section-by-section description of the 

proposed part, the provisions are more 

stringent for creditors providing 

consumer credit to covered borrowers 

(as defined in the part). In such 

circumstances, State laws would not be 

preempted by operation of this part. 

In this respect, this proposed part, if 

adopted, would not affect in any 

manner the powers and authorities that 

any State may have or affect the 

distribution of power and 

responsibilities between Federal and 

State levels of government. Therefore, 

the Department has determined that the 

proposed part has no federalism 

implications that warrant the 

preparation of a Federalism Assessment 

in accordance with Executive Order 

13132. 

List of Subjects in 32 CFR Part 232 

Loan programs, Reporting and 

recordkeeping requirements, Service 

members. 

For the reasons set forth in the 

preamble, chapter I of title 32, Code of 

Federal Regulations is proposed to 

amended by adding part 232 to read as 

follows: 

PART 232—LIMITATIONS ON TERMS 

OF CONSUMER CREDIT EXTENDED 

TO SERVICE MEMBERS AND 

DEPENDENTS 

Sec. 

232.1 Authority, purpose, and coverage. 

232.2 Applicability. 

232.3 Definitions. 

232.4 Terms of consumer credit extended to 

covered borrowers. 

232.5 Identification of covered borrower. 

232.6 Mandatory loan disclosures. 

232.7 Preemption. 

232.8 Limitations. 

232.9 Penalties and remedies. 

232.10 Servicemembers Civil Relief Act 

protections unaffected. 

232.11 Effective date and transition. 

Authority: 10 U.S.C. 987. 

§ 232.1 Authority, purpose, and coverage. 

(a) Authority. This part is issued by 

the Department of Defense to implement 

10 U.S.C. 987. 

(b) Purpose. The purpose of this part 

is to impose limitations on the cost and 

terms of certain defined extensions of 

consumer credit to Service members 

and their dependents, and to provide 

additional consumer disclosures for 

such transactions. 

(c) Coverage. This part defines the 

types of consumer credit transactions, 

creditors, and borrowers covered by this 

part, consistent with the provisions of 

10 U.S.C. 987. In addition, this part: 

(1) Provides the maximum allowable 

amount of all charges, and the types of 

charges, that may be associated with a 

covered extension of consumer credit; 

(2) Requires creditors to disclose to 

covered borrowers the cost of the 

transaction as a total dollar amount and 

as an annualized percentage rate 

referred to as the Military Annual 

Percentage Rate or MAPR, which must 

be disclosed before the borrower 

becomes obligated on the transaction. 

The disclosures required by this 

regulation differ from and are in 

addition to the disclosures that must be 

provided to consumers under the 

Federal Truth in Lending Act; 

(3) Provides for the method creditors 

shall use in calculating the MAPR, and; 

(4) Contains such other criteria and 

limitations as the Secretary of Defense 

has determined appropriate, consistent 

with the provisions of 10 U.S.C. 987. 

§ 232.2 Applicability. 

This part applies to consumer credit 

extended by creditors to a covered 

borrower, as those terms are defined in 

this part. 

§ 232.3 Definitions. 

Terms used in this part are defined as 

follows: 

(a) Closed-end credit means consumer 

credit other than ‘‘open-end credit’’ as 

that term is defined in Regulation Z 

(Truth in Lending), 12 CFR Part 226. 

(b) Consumer credit means credit 

offered or extended to a covered 

borrower primarily for personal, family 

or household purposes, as described in 

paragraph (b)(1) of this section. 


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(1) Except as provided in paragraph 

(b)(2) of this section, consumer credit 

means the following transactions: 

(i) Payday loans. Closed-end credit 

with a term of 91 days or less in which 

the amount financed does not exceed 

$2,000 and the covered borrower: 

(A) Receives funds from and incurs 

interest and/or is charged a fee by a 

creditor, and contemporaneously 

provides a check or other payment 

instrument to the creditor who agrees 

with the covered borrower not to 

deposit or present the check or payment 

instrument for more than one day, or; 

(B) Receives funds from and incurs 

interest and/or is charged a fee by a 

creditor, and contemporaneously 

authorizes the creditor to initiate a debit 

or debits to the covered borrower’s 

deposit account (by electronic fund 

transfer or remotely created check) after 

one or more days. This provision does 

not apply to any right of a depository 

institution under statute or common law 

to offset indebtedness against funds on 

deposit in the event of the covered 

borrower’s delinquency or default. 

(ii) Vehicle title loans. Closed-end 

credit with a term of 181 days or less 

that is secured by the title to a motor 

vehicle owned by a covered borrower, 

other than a purchase money 

transaction described in paragraph 

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

(iii) Tax refund anticipation loans. 

Closed-end credit in which the covered 

borrower expressly grants the creditor 

the right to receive all or part of the 

borrower’s income tax refund or agrees 

to repay the loan with the proceeds of 

the borrower’s refund. 

(2) For purposes of this part, 

consumer credit does not mean: 

(i) Residential mortgages, which are 

any credit transactions secured by an 

interest in the covered borrower’s 

dwelling, including transactions to 

finance the purchase or initial 

construction of a dwelling, refinance 

transactions, home equity loans or lines 

of credit, and reverse mortgages; 

(ii) Any credit transaction to finance 

the purchase or lease of a motor vehicle 

when the credit is secured by the 

property being purchased or leased; 

(iii) Any credit transaction to finance 

the purchase of personal property other 

than a motor vehicle when the credit is 

secured by the property being 

purchased; and 

(iv) Any other credit transaction that 

is not consumer credit extended by a 

creditor, is an exempt transaction, or is 

not otherwise subject to disclosure 

requirements for purposes of Regulation 

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

(v) Credit secured by a qualified 

retirement account as defined in the 

Internal Revenue Code. 

(c) Covered borrower means a person 

with the following status at the time he 

or she becomes obligated on a consumer 

credit transaction covered by this part: 

(1) A regular or reserve member of the 

Army, Navy, Marine Corps, Air Force, 

or Coast Guard, serving on active duty 

under a call or order that does not 

specify a period of 30 days or less, or 

such a member serving on Active Guard 

and Reserve duty as that term is defined 

in 10 U.S.C. 101(d)(6), or 

(2) The member’s spouse, the 

member’s child defined in 38 U.S.C. 

101(4), or an individual for whom the 

member provided more than one-half of 

the individual’s support for 180 days 

immediately preceding an extension of 

consumer credit covered by this part. 

(d) Credit means the right granted by 

a creditor to a debtor to defer payment 

of debt or to incur debt and defer its 

payment. 

(e) Creditor means a person who is 

engaged in the business of extending 

consumer credit with respect to a 

consumer credit transaction covered by 

this part. For the purposes of this 

section, ‘‘person’’ includes a natural 

person, organization, corporation, 

partnership, proprietorship, association, 

cooperation, estate, trust, and any other 

business entity and who otherwise 

meets the definition of ‘‘creditor’’ for 

purposes of Regulation Z. 

(f) Dwelling means a residential 

structure that contains one to four units, 

whether or not the structure is attached 

to real property. The term includes an 

individual condominium unit, 

cooperative unit, mobile home, and 

manufactured home. 

(g) Electronic fund transfer (EFT) has 

the same meaning for purposes of this 

part as in Regulation E (Electronic Fund 

Transfers) issued by the Board of 

Governors of the Federal Reserve 

System, 12 CFR Part 205. 

(h) Military annual percentage rate 

(MAPR). The MAPR is the cost of the 

consumer credit transaction expressed 

as an annual rate. The MAPR includes 

the following cost elements associated 

with the extension of consumer credit to 

a covered borrower if they are financed, 

deducted from the proceeds of the 

consumer credit, or otherwise required 

to be paid as a condition of the credit: 

interest, fees, credit service charges, 

credit renewal charges, credit insurance 

premiums including charges for single 

premium credit insurance, fees for debt 

cancellation or debt suspension 

agreements, and fees for credit-related 

ancillary products sold in connection 

with and either at or before 

consummation of the credit transaction. 

The MAPR does not include a fee 

imposed for actual unanticipated late 

payments, default, delinquency, or 

similar occurrence. The MAPR does not 

include tax return preparation fees 

associated with a refund anticipation 

loan, whether or not the fees are 

deducted from the loan proceeds. The 

MAPR shall be calculated based on the 

costs in this definition but in all other 

respects it shall be calculated and 

disclosed following the rules used for 

calculating the Annual Percentage Rate 

(APR) for closed-end credit transactions 

under Regulation Z (Truth in Lending), 

12 CFR Part 226. 

(i) Regulation Z means any of the 

rules, regulations, or interpretations 

thereof, issued by the Board of 

Governors of the Federal Reserve 

System to implement the Truth in 

Lending Act, as amended from time to 

time, including any interpretation or 

approval issued by an official or 

employee duly authorized by the Board 

of Governors of the Federal Reserve 

System to issue such interpretations or 

approvals. Words that are not defined in 

this part have the meanings given to 

them in Regulation Z (12 CFR part 226) 

issued by the Board of Governors of the 

Federal Reserve System (the ‘‘Board’’), 

as amended from time to time, 

including any interpretation thereof by 

the Board or an official or employee of 

the Federal Reserve System duly 

authorized by the Board to issue such 

interpretations. Words that are not 

defined in this part or Regulation Z, or 

any interpretation thereof, have the 

meanings given to them by State or 

Federal law, or contract. 

§ 232.4 Terms of consumer credit 

extended to covered borrowers. 

(a) A creditor who extends consumer 

credit to a covered borrower and an 

assignee of the creditor, shall not 

require the member or dependent to pay 

a military annual percentage rate with 

respect to such extension of credit, 

except as—

(1) Agreed to under the terms of the 

credit agreement or promissory note; 

(2) Authorized by applicable State or 

Federal law; and 

(3) Not specifically prohibited by this 

part. 

(b) A creditor described in paragraph 

(a) of this section or an assignee may not 

impose an MAPR greater than 36 

percent in connection with an extension 

of consumer credit to a covered 

borrower. 

§ 232.5 Identification of covered borrower. 

(a) This part shall not apply to a 

consumer credit transaction if the 


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conditions described in paragraphs 

(a)(1) and (2) of this section are met: 

(1) Prior to becoming obligated on the 

transaction, each applicant is provided 

with a clear and conspicuous ‘‘covered 

borrower identification statement’’

substantially similar to the following 

statement and each applicant signs the 

statement indicating that he or she is 

not a covered borrower: 

Federal law provides important protections to active duty members of the Armed Forces and their dependents. To ensure that these protections are provided to eligible applicants, we require you to sign one of the following statements as applicable: 

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

I AM a dependent of a member of the Armed Forces on active duty because I am the member’s spouse, the member’s child under the age of 

eighteen years old, or I am an individual for whom the member provided more than one-half of my financial support for 180 days immediately preceding today’s date. 

—OR— 

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

Warning: It is important to fill out this form accurately. Knowingly making a false statement on a credit application is a crime 

(2) The creditor has not determined, 

pursuant to the optional verification 

procedures in paragraph (b) of this 

section, that any such applicant is a 

covered borrower. 

(b) The creditor may, but is not 

required to, verify the status of an 

applicant as a covered borrower by 

requesting the applicant to provide a 

current (previous month) military leave 

and earning statement, or a military 

identification card (DD Form 2 for 

members, DD Form 1173 for 

dependents), as described in DoD 

Instruction 1003.1, Identification (ID) 

Cards for Members of the Uniformed 

Services, Their Dependents, and Other 

Eligible Individuals, December 5, 1997. 

Upon such request, activated members 

of the National Guard or Reserves shall 

also provide a copy of the military 

orders calling the covered member to 

military service and any orders further 

extending military service. 

(c) The creditor may, but is not 

required to, verify the status of an 

applicant as a covered borrower by 

accessing the information available at 

https://www.dmdc.osd.mil/scra/owa/ 

home. Searches require the service 

member’s full name, Social Security 

number, and date of birth. 

(d) This part shall not apply to a 

consumer credit transaction in which 

the creditor rolls over, renews, repays, 

refinances, or consolidates consumer 

credit in accordance with § 232.8(a)(1) if 

§ 232.5(a)(1) and (2) applied to the 

previous transaction. 

§ 232.6 Mandatory loan disclosures 

(a) Required information. With 

respect to any extension of consumer 

credit (including any consumer credit 

originated or extended through the 

Internet) to a covered borrower, a 

creditor shall provide to the member or 

dependent the following information 

clearly and conspicuously before 

consummation of the consumer credit 

transaction: 

(1) The MAPR applicable to the 

extension of consumer credit, and the 

total dollar amount of all charges 

included in the MAPR. 

(2) Any disclosures required by 

Regulation Z (Truth in Lending), 12 CFR 

Part 226. 

(3) A clear description of the payment 

obligation of the covered borrower, as 

applicable. A payment schedule 

provided pursuant to paragraph (a)(2) of 

this section satisfies this requirement. 

(4) A statement that ‘‘Federal law 

provides important protections to active 

duty members of the Armed Forces and 

their dependents. Members of the 

Armed Forces and their dependents 

may be able to obtain financial 

assistance from Army Emergency Relief, 

Navy and Marine Corps Relief Society, 

the Air Force Aid Society, or Coast 

Guard Mutual Aid. Members of the 

Armed Forces and their dependents 

may request free legal advice regarding 

an application for credit from a service 

legal assistance office or financial 

counseling from a consumer credit 

counselor.’’

(b) Method of disclosure. (1) Written 

disclosures. The creditor shall provide 

the disclosures required by paragraph 

(a) of this section in writing in a form 

the covered borrower can keep. 

(2) Oral disclosures. The creditor also 

shall provide the disclosures required 

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

section orally before consummation. In 

mail and internet transactions, the 

creditor satisfies this requirement if it 

provides a toll-free telephone number 

on or with the written disclosures that 

consumers may use to obtain oral 

disclosures and the creditor provides 

oral disclosures when the covered 

borrower contacts the creditor for this 

purpose. 

§ 232.7 Preemption. 

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

implemented by this regulation 

preempts any State or Federal law, rule 

or regulation, including any State usury 

law, to the extent such law, rule or 

regulation is inconsistent with this part, 

except that any such law, rule or 

regulation is not preempted to the 

extent that it provides protection to a 

covered borrower beyond those 

protections provided by 10 U.S.C. 987 

and this part. 

(b) Different treatment under State 

law of covered borrowers prohibited. 

States may not: 

(1) Authorize creditors to charge 

covered borrowers MAPRs for consumer 

credit higher than the legal limit for 

residents of the State, or 

(2) Permit the violation or waiver of 

any State consumer lending protection 

that is for the benefit of residents of the 

State on the basis of the covered 

borrower’s nonresident or military 

status, regardless of the covered 

borrower’s domicile or permanent home 

of record, provided that the protection 

would otherwise apply to the covered 

borrower. 

§ 232.8 Limitations. 

(a) 10 U.S.C. 987 makes it unlawful 

for any creditor to extend consumer 

credit to a covered borrower with 

respect to which: 

(1) The creditor rolls over, renews, 

repays, refinances, or consolidates any 

consumer credit extended to the 

covered borrower by the same creditor 

with the proceeds of other consumer 

credit extended by that creditor to the 

same covered borrower, unless the new 

transaction results in more favorable 

terms to the covered borrower, such as 

a lower MAPR. 

(2) The covered borrower is required 

to waive the covered borrower’s right to 

legal recourse under any otherwise 

applicable provision of State or Federal 

law, including any provision of the 

Servicemembers Civil Relief Act (50 

U.S.C. App. 527). 

(3) The creditor requires the covered 

borrower to submit to arbitration or 


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18170 Federal Register / Vol. 72, No. 69 / Wednesday, April 11, 2007 / Proposed Rules 

imposes other onerous legal notice 

provisions in the case of a dispute. 

(4) The creditor demands 

unreasonable notice from the covered 

borrower as a condition for legal action. 

(5) The creditor uses a check or other 

method of access to a deposit, savings, 

or other financial account maintained 

by the covered borrower, or uses the 

title of a vehicle as security for the 

obligation, except that, in connection 

with a consumer credit transaction with 

an MAPR consistent with § 232.4(b): 

(i) The creditor may require an 

electronic fund transfer to repay a 

consumer credit transaction, unless 

otherwise prohibited by Regulation E 

(Electronic Fund Transfers) 12 CFR Part 

205; 

(ii) The creditor may require direct 

deposit of the consumer’s salary as a 

condition of eligibility for consumer 

credit, unless otherwise prohibited by 

law; or 

(iii) The creditor may, if not otherwise 

prohibited by applicable law, take a 

security interest in funds deposited after 

the extension of credit in an account 

established in connection with the 

consumer credit transaction. 

(6) The creditor requires as a 

condition for the extension of consumer 

credit that the covered borrower 

establish an allotment to repay the 

obligation. 

(7) The covered borrower is 

prohibited from prepaying the consumer 

credit or is charged a penalty fee for 

prepaying all or part of the consumer 

credit. 

(b) For purposes of this section, an 

assignee may not engage in any 

transaction or take any action that 

would be prohibited for the creditor. 

§ 232.9 Penalties and remedies. 

(a) Misdemeanor. A creditor or 

assignee who knowingly violates 10 

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

shall be fined as provided in title 18, 

United States Code, or imprisoned for 

not more than one year, or both. 

(b) Preservation of other remedies. 

The remedies and rights provided under 

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

part are in addition to and do not 

preclude any remedy otherwise 

available under law to the person 

claiming relief under the statute, 

including any award for consequential 

damages and punitive damages. 

(c) Contract void. Any credit 

agreement, promissory note, or other 

contract with a covered borrower which 

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

implemented by this regulation or 

which contains one or more provisions 

prohibited under 10 U.S.C. 987 as 

implemented by this regulation is void 

from the inception of the contract. 

(d) Arbitration. Notwithstanding 9 

U.S.C. 2, or any other Federal or State 

law, rule, or regulation, no agreement to 

arbitrate any dispute involving the 

extension of consumer credit involving 

a covered borrower pursuant to this part 

shall be enforceable against any covered 

borrower, or any person who was a 

covered borrower when the agreement 

was made. 

§ 232.10 Servicemembers Civil Relief Act 

protections unaffected. 

Nothing in this part may be construed 

to limit or otherwise affect the 

applicability of Section 207 and any 

other provisions of the Servicemembers 

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

§ 232.11 Effective date and transition. 

Applicable consumer credit—This 

part shall only apply to consumer credit 

that is extended to a covered borrower 

and consummated on or after October 1, 

2007. 

Dated: April 5, 2007. 

L.M. Bynum, 

Alternate OSD Federal Register Liaison 

Officer, DOD. 

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

BILLING CODE 5001–06–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 100 

[CGD05–07–017] 

RIN 1625–AA08 

Special Local Regulations for Marine 

Events; Rappahannock River, Essex 

County, Westmoreland County, 

Layton, VA 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Coast Guard proposes a 

temporary special local regulation for 

‘‘2007 Rappahannock River Boaters 

Association Spring Radar Shootout’’, 

power boat races to be held on the 

waters of the Rappahannock River near 

Layton, VA. These special local 

regulations are necessary to provide for 

the safety of life on navigable waters 

during the event. This action is 

intended to restrict vessel traffic in the 

Rappahannock River during the event. 

DATES: Comments and related material 

must reach the Coast Guard on or before 

May 11, 2007. 

ADDRESSES: You may mail comments 

and related material to Commander 

(dpi), Fifth Coast Guard District, 431 

Crawford Street, Portsmouth, Virginia 

23704–5004, hand-deliver them to 

Room 415 at the same address between 

9 a.m. and 2 p.m., Monday through 

Friday, except Federal holidays, or fax 

them to (757) 391–8149. The Coast 

Guard Inspections and Investigations 

Branch, Fifth Coast Guard District, 

maintains the public docket for this 

rulemaking. Comments and material 

received from the public, as well as 

documents indicated in this preamble as 

being available in the docket, will 

become part of this docket and will be 

available for inspection or copying at 

the above address between 9 a.m. and 2 

p.m., Monday through Friday, except 

Federal holidays. 

FOR FURTHER INFORMATION CONTACT: 

Dennis Sens, Marine Events 

Coordinator, Fifth Coast Guard District, 

at (757) 398–6204. 

SUPPLEMENTARY INFORMATION: 

Request for Comments 

We encourage you to participate in 

this rulemaking by submitting 

comments and related material. If you 

do so, please include your name and 

address, identify the docket number for 

this rulemaking (CGD05–07–017), 

indicate the specific section of this 

document to which each comment 

applies, and give the reason for each 

comment. Please submit all comments 

and related material in an unbound 

format, no larger than 81⁄2 by 11 inches, 

suitable for copying. If you would like 

to know they reached us, please enclose 

a stamped, self-addressed postcard or 

envelope. We will consider all 

comments and material received during 

the comment period. We may change 

this proposed rule in view of them. 

Public Meeting 

We do not plan to hold a public 

meeting. But you may submit a request 

for a meeting by writing to the Coast 

Guard at the address under ADDRESSES

explaining why one would be 

beneficial. If we determine that one 

would aid this rulemaking, we will hold 

one at a time and place announced by 

a later notice in the Federal Register. 

Background and Purpose 

On June 30, 2007, the Rappahannock 

River Boaters Association (RRBA) will 

sponsor the ‘‘2006 RRBA Spring Radar 

Shootout’’, on the waters of the 

Rappahannock River near Layton, 

Virginia. The event will consist of 

approximately 35 powerboats 

participating in high-speed competitive 

races, traveling along a 3-mile strait line 


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