CUNA Regulatory Comment Call

December 7, 2006

• The Department of Defense (DOD) has recently requested input as it begins the process of drafting the rules to implement the new military lending law that is intended to protect military servicemembers from abusive lending practices. The new law, passed by Congress and signed by President Bush on October 16, 2006, imposes a number of new restrictions with regard to loans for military personnel. This includes a 36% interest rate cap on most loans extended to members of the military, reserves, the National Guard, as well as their dependents (exceptions include home loans and secured purchase-money loans for cars and other personal property).

• The law also prohibits refinancing or consolidation of these loans by the same creditor; prohibits holding checks, automated clearinghouse (ACH) authorizations, or vehicle titles as security for the loan; and imposes a number of other restrictions. DOD is responsible for issuing the rules to implement the law, in consultation with NCUA and the other financial institution regulators.

• The new law raises a number of implementation issues, and DOD has recently requested input as it begins the process of developing these new rules. Click here for more information on DOD’s request.

• These implementation issues affect all credit unions that serve, or may potentially serve, military personnel and their dependents and include:
  • A definition of annual percentage rate (APR) that differs from the one included in the Truth in Lending Act and Regulation Z. This may result in the disclosure of two APRs, which will likely confuse members.
  • Since the law does not require service members or their dependents to notify lenders of their eligibility under this new law, lenders may either have to develop new applicant identification procedures or revised loan applications.
  • The disclosures will have to be provided both orally and in writing, which may lengthen the loan process and affect loans that are processed electronically.
• CUNA and DCUC will jointly sponsor an audio conference call to be held January 4 from 2-3:30 PM Eastern Time. The call will provide both an opportunity to learn more about the law and to voice your concerns regarding the implementation issues, as described above. Speakers will include regulators and others that have been following these issues, including DCUC President and Chief Executive Officer Arty Arteaga, and will be moderated by Mary Dunn, CUNA Senior Vice President and Deputy General Counsel. Click here for more information and to register for this call.

• Click here for a summary of this new law from Mike McLain, CUNA Assistant General Counsel, which provides additional information about the new law and its implications for credit unions.
• Comments on this proposal will be due by February 5, 2007.

Please submit your comments to CUNA by January 25, 2007. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004.

• How difficult will it be for you to determine members’ eligibility for coverage under this new law, especially if your credit union does not have military fields of membership or otherwise do not serve large numbers of military personnel?
  
  

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• How will the 36% interest rate cap affect credit union products and services that are available to servicemembers and their families, especially since a number of fees would be included within the APR that are not currently included under Regulation Z, the Truth in Lending Act? Do you agree that this may include curtailing predatory lending alternatives that may now violate this new law, prohibiting refinancing a loan that may benefit the servicemembers, and prohibiting payroll deduction of loan payments, as the law prohibits requiring the borrower to “establish an allotment” for repayment?
  
  

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• What problems will be associated with the statutory disclosure requirement to provide two disclosures to reflect the APRs calculated under Regulation Z and this new law? Do you agree that one such problem will be the appearance to the military personnel that they are receiving a higher rate loan since the APR under this new law will likely be higher than the APR calculated under Regulation Z? What other problems do you foresee?
  
  

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• What problems will there be with the new requirement to provide these disclosures orally? How will this requirement affect electronic transactions?
  
  

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• Other comments?
  
  

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