- The DoD's final rule regulates the terms of certain credit extensions to active duty service members and their dependents.
- The final rule applies to "consumer credit," which the DoD has defined as "payday loans," "vehicle title loans" and "tax refund anticipation loans." The rule:
- Limits interest to a 36 percent "military annual percentage rate (MAPR)" that comprises all fees and charges;
- Requires that certain oral and written loan disclosures be provided before the issuance of the covered transaction; and
- Prohibits or limits certain terms and conditions associated with these types of consumer credit.
- FDIC-supervised depository institutions are reminded of other protections afforded to service personnel and their dependents, including:
- The Servicemembers Civil Relief Act, which among other things caps the interest rate on credit extensions at six percent during a service member's period of active duty service; and
- 10 U.S.C. 1044b, which exempts a military power of attorney from state form requirements and gives it the same force as one prepared and executed under state law.
Continuation of FIL-83-2007
FDIC-Supervised Banks (Commercial and Savings)
Chief Executive Officer
Chief Loan Officer
Chief Compliance Officer
Department of Defense, 32 C.F.R. Part 232,
"Limitations on Terms of Consumer Credit Extended to Service
Members and Dependents," Final Rule
Deirdre Foley, Senior Policy Analyst, Compliance Policy and
Examination Support, firstname.lastname@example.org or (202) 898-6612; or
Janet Norcom, Counsel, Legal Division, email@example.com or
FDIC financial institution letters (FILs) may be accessed from
the FDIC's Web site at
To receive FILs electronically, please visit
Paper copies of FDIC financial institution letters may be
obtained through the FDIC's Public Information Center, 3501
Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342
Financial Institution Letters
September 24, 2007
Consumer Protection: Service Members
Department of Defense Final Rule on Limitations on Consumer Credit Extended to Service
Members and Dependents (Talent Amendment)
The Department of Defense (DoD) has published the attached final rule stipulating the terms of
certain credit extensions to active duty service members and their dependents ("covered
borrowers"). The rule covers payday loans, motor vehicle title loans, and tax refund anticipation
loans, as defined by DoD, and applies to all persons engaged in the business of extending such
credit and their assignees. For these defined transactions with covered borrowers ("covered
transactions"), the DoD rule:
- Limits interest to a 36 percent "military annual percentage rate (MAPR)" that comprises all fees and charges, including those for single premium credit insurance and other ancillary products sold in connection with the transaction; and
- Requires that certain oral and written loan disclosures be provided before the issuance of the covered transaction.
The DoD rule provides:
- The applicable consumer disclosures;
- The method for calculating the MAPR (as opposed to the Truth in Lending Act APR);
- The maximum amount and types of fees that may be charged; and
- A "safe harbor" for identifying covered borrowers, including a model borrower identification statement that creditors may use.
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.
Creditors offering any covered transactions are subject to criminal and civil penalties if they
violate the rule. Moreover, consumer credit contracts that are not in compliance with the rule
will be deemed void from inception.
The final rule will take effect on October 1, 2007, and will apply to covered transactions that are
consummated on or after that date. All creditors that offer any covered transactions are expected
to be in full compliance by October 1, 2007.
||Sandra L. Thompson
Division of Supervision and Consumer Protection