Department of Defense Loan Disclosure Rules Policy and Procedures
POLICY STATEMENT
It is the policy of [insert the name of your bank] to comply with 32 CFR 232 of the Department of
Defense (DoD) regulations which requires special disclosures for certain consumer products used by
servicemembers.
Borrowers Protected by the Rules
The rules protect regular and Reserve members of the Army, Navy, Marine Corps, Air Force, and Coast
Guard who are serving on active duty under a call or order that does not specify a period of 30 days or
less, and such members serving on Active Guard and Reserve duty. It also includes a member's spouse,
child, 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 the regulation.
Credit Subject to the Rules
The rules apply only to payday loans, vehicle title loans, and tax refund anticipation loans that are offered
or extended primarily for personal, family, or household purposes. Specifically, the loans covered by the
rules are:
•
Payday loans that are closed-end, for a term of 91 days or less and with an amount financed of
$2,000 or less. The amount financed is not defined in this regulation, but it must be determined
based on the definition of that term in Regulation Z (12 CFR 1026).
•
Vehicle title loans that are closed-end credit with a term of 181 days or less that are secured by
the title to a motor vehicle owned by a covered borrower, other than a loan to purchase the
vehicle.
•
Tax refund anticipation loans that are 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 refund.
Certain loans are specifically not covered. These are:
•
Loans secured by the borrower's dwelling, home equity loans, and home equity lines of credit. A
"dwelling" includes any residential structure containing one to four units, whether or not the
structure is attached to real property. It also includes an individual condominium unit, cooperative
unit, mobile home, and manufactured home.
•
Transactions to purchase or lease a vehicle.
•
Loans to purchase personal property when secured by that property.
•
Loans secured by a qualified retirement account.
Military Annual Percentage Rate (MAPR)
Loans made to covered borrowers are subject to a maximum military annual percentage rate (MAPR),
which the regulation limits to not more than 36 percent.
The MAPR is the cost of the consumer credit transaction expressed as an annual rate. It 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 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
•
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 fees imposed for actual unanticipated late payments, default, delinquency, or
similar occurrences. The MAPR also 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 board directs management to implement procedures to calculate the MAPR based on these defined
costs using the rules for calculating the annual percentage rate (APR) for closed-end credit transactions
under Regulation Z (12 CFR 1026).
Terms of Consumer Credit Extended to Covered Borrowers
In addition to the MAPR limit, the rules also place restrictions on other terms of covered loans. We may
not include certain prohibited clauses in these loan contracts. We may not:
•
Require that the borrower agree to arbitration
•
Roll over, renew, repay, refinance, or consolidate any consumer credit extended to the covered
borrower with the proceeds of a loan to the same borrower unless the new transaction results in
more favorable terms, such as a lower MAPR
•
Require the borrower to waive their rights under any federal law, including the Servicemembers
Civil Relief Act (SCRA)
•
Demand unreasonable notice of legal action from the borrower
•
Require the use of a check or other method of access to the borrower’s financial accounti*
•
Require that the borrower establish an allotment to repay the loan
Mandatory Loan Disclosures
We must make the following disclosures to covered borrowers:
•
The MAPR applicable to the extension of consumer credit, and the total dollar amount of all
charges included in the MAPR.
•
Any disclosures required by Regulation Z, including the APR.
•
A clear description of the payment obligation of the covered borrower, such as the payment
schedule required by Regulation Z (12 CFR 1026).
•
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."
Loan officers must make all disclosures, except the APR required by Regulation Z, both orally and in
writing. In mail and Internet loan transactions, we may satisfy this requirement by providing a toll-free
telephone number on or with the written disclosures that consumers may use to obtain oral disclosures.
Procedures to Identify Covered Borrowers
We must ask each applicant for the covered loans to sign a statement declaring whether or not he or she is
a covered borrower. This declaration provides a "safe harbor" for the creditor to prevent inadvertently
violating the statute. The model form for this declaration is included as Exhibit A to this policy.
The safe harbor will not apply (even if the loan applicant signs the declaration) if our lender obtains other
information, such as a current military leave and earning statement, as proof of employment that would
suggest that the person is covered under the regulation. In these cases, the loan department must have
procedures to resolve the inconsistency. If it cannot be resolved, we will treat the borrower as if he or she
is covered.
Renewals and Refinancings
We must also provide the required disclosures when renewing or refinancing a covered loan. For
refinancings, we may use the definition of refinance in Regulation Z (e.g., 12 CFR 1026.20(a) for closedend credit) to determine whether we must give new DoD disclosures: that is, when the existing obligation
is satisfied and replaced with a new obligation.
Penalties and Remedies
A violation of the rules will be considered a misdemeanor. We may be fined accordingly under
the rules in the U.S. Criminal Code or imprisoned for not more than one year, or both. In
addition, a lender who violates the rules may be subject to civil action by the borrower for
damages. Any credit agreement, promissory note, or other contract with a covered borrower that
fails to comply with this regulation is considered void from the inception of the contract
EXHIBIT
Exhibit A
DoD Disclosure Form
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 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 fewer.
[ ]
I AM a dependent of a member of the Armed Forces on active duty as described above, 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 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 fewer.
Warning: It is important to fill out this form accurately. Knowingly making a false statement on a credit
application is a crime.
______________________________________
Applicant's Signature
______________________________________
Applicant's Signature
Date: _________________________________
i
*
We may require an electronic transfer to pay the loan as long as it is in compliance with Regulation E (12 CFR 1005). We may also take a
security interest in funds deposited after the loan, and we may require direct deposit of the borrower's salary as a condition of eligibility for
consumer credit unless otherwise prohibited.