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Subject: Limitations on Terms of Consumer Credit Extended to Military Service Members and Dependents
Date: October 17, 2007
To: Chief Executive Officers and Compliance Officers of All National Banks and National Bank Operating Subsidiaries, Department and Division Heads, and All Examining Personnel
Description: Department of Defense Final Rule
The Department of Defense (DoD) has published the attached final rule that stipulates the terms of certain credit extensions to active duty service members and their dependents (covered borrowers). The rule applies to all persons engaged in the business of extending consumer credit and their assignees. The final rule applies to "consumer credit," which the DoD defines as "payday loans," "vehicle title loans" and "tax refund anticipation loans" that meet specific parameters. For these defined transactions with covered borrowers (covered transactions), the DoD rule
Additionally, the DoD rule specifies
The DoD rule prohibits mandatory arbitration, waiver of legal rights, unreasonable notice requirements as a condition for legal action, payment by allotment, and prepayment penalties. The rule further limits or restricts rollovers and refinancings and the use of a check or other method of access to a covered borrower’s account with certain exceptions.
Creditors offering any covered transactions may be subject to criminal and civil penalties if they knowingly violate the rule. Moreover, consumer credit contracts that are not in compliance with the rule will be deemed void from inception.
The final rule took effect on October 1, 2007. It applies to covered transactions that are consummated on or after that date.
For more information, please contact your supervisory office, the Compliance Policy Department at (202) 874-4428, or the Community and Consumer Law Division at (202) 874-5750.