Your Comments May Save You Money
Andy Zavoina CRCM, BOL Guru
In the December 2006 Executive Briefing I explained the details of a new law1 that requires the Department of Defense to write new regulations affecting your lending procedures. You may want to review that article as I will not recite the features here. Suffice it to say it will be burdensome to your lenders, it will require new forms, new software, and it will potentially reduce both your market share of borrowers and the interest returns on your loans. Depending on how the regulation is written, it could impact overdrafts whether you have a formal program or not.
In the closing of my earlier article I explained how the Democrats' taking the House and Senate may impact this new law. Sen. Talent, who added this section of the law to the broader military appropriations bill was defeated in his bid for re-election and Sen. Tim Johnson said it would be reviewed. This is the same Sen. Johnson who recently underwent surgery and will not be able to carry out his agenda. It doesn't appear that anyone else is going to champion this cause.
On December 5, 2006, a brief request for comments was posted by the Department of Defense, Volume 71, Number 233, Page 70512. If you are used to detailed regulatory proposals that denote specific questions that should be addressed in comment letters, that isn't here. This is the "meat" of the request:
The Department of Defense views this requirement as an opportunity to ensure the protections included in the statute do not create unintended limitations on Service members and their families obtaining favorable credit products.
If this is a precursor to the final regulation, please sharpen your pencils and send a comment letter. While your lenders, compliance officers, and auditors should assist in this, it is often banking executives who actually finalize comment letters in an effort to help form the regulations we will all have to abide by for years to come. BankersOnline has several documents that may assist you in composing your comment letter. Writing Comment Letters
and How to Comment are two short primers.
Potential Comment Letter Issues
Definitions can be the key to any regulation and all lenders are not created equal. We believe different entities should be differentiated here. Banks are highly regulated, regularly examined, have CRA requirements to meet market borrowing needs, and are not the abusers in payday lending problems. The law specifically allows for latitude in the definition of "creditor." Absent a call for specific issues to be addressed, here are our recommendations:
Key Issues:
- Define "creditor" as a non-banking entity, one that is regulated by neither a state nor a federal agency.
- Exclude all loans from regulated lenders under the term "consumer credit."
- Avoid confusing but similar APR disclosures. It is fine that the "cost" elements be specifically identified, but disclosing a second APR will be confusing and costly. Consumers should be given a free choice of accepting these loan features which carry a cost, such as credit insurance. They opt to have insurance or pay a fee, or they elect not to. A separate disclosure isn't needed for this.
- Eliminate the need for oral disclosures either altogether, or for those loans not closed in person. This requirement will impede borrowing over the internet and by mail. It could also impede loans closed electronically using E-SIGN. Oral disclosure requirements will not help the servicemember or their dependent who is stationed away from the bank they use primarily and have trusted for financial services for potentially many years.
- Remove the prohibition against loan renewals. This could have a negative impact on workout loans and borrowers genuinely needing increases. It may be that the number of loans is restricted or that a time limit be imposed after which a loan may be renewed.
- Banking regulators and the FTC are to be consulted in authoring the regulation. But we feel they should play a heavy role in the crafting of the regulation so that it best interacts with other requirements we must already meet. The Department of Defense cannot do this on their own, and they should not place the regulators in an advisory role only.
Executive Steps:
- Discuss the affect of this law with lenders, compliance and audit staff.
- Examine the difficulties in compliance. Software revisions, new forms, lending procedures and training requirements will all be required as you first question all borrowers to determine if they are covered, and then meet the burdensome requirements or delete these products from your list of those available.
- Examine the difficulties in verifying these steps are met, especially oral disclosures.
- Formulate your comment letter with estimates on cost, and the potential for the elimination of loan products being offered.
- Send your comment letter, by February 5, 2007, according to the instructions in the Federal Register as well as to your primary regulator. Include the Federal Reserve Board because they have a primary role in regulatory ownership (if they are not your primary regulator), and copy the Senators and Congressmen who represent you.
1The John Warner National Defense Authorization Act for Fiscal Year 2007
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First published on BankersOnline.com 1/11/07
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