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#620309 - 10/02/06 01:44 PM New Usury Rates for Servicemembers
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I haven't completed a full review yet of HR 5122, but it looks like it will impose a 36% APR on loans to persons and dependants in the military effective 10-01-07, and potentially earlier.

This may impact those lenders making small, short term loans to active duty (and those being called up) military. I'm not sure who will enforce this. DoD has more authority than I'd like to see them have and will this be enforced against the payday lenders that are the true subject of the problem?
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Lending to Servicemembers (SCRA, JWNDAA), War, Terrorism
#620310 - 10/03/06 02:29 PM Re: New Usury Rates for Servicemembers
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I'll be interested to see your take on this, Andy. We were discussing it yesterday and it seems to prohibit things we take for granted, like CD loans. We're concerned about the definition of dependent. It's anyone that's received support from a service member for more than 180 days. That could include absolutely any person. It seems like we would have to ask if an applicant received support from a service member in order to ensure the proper disclosures are made. And the APR calcuations include things not in the current Reg Z calculation. It seems we'd have to either show two APR's or have two calculations and show the applicable APR.
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#620311 - 10/07/06 02:41 PM Re: New Usury Rates for Servicemembers
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I haven't completed a thorough analysis, but yes, you're on the right road. You'll have to ask if they're a dependant of a SM (as it is defined here) and you'll have fees adding to the APR that normally do not.
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#620312 - 11/01/06 04:07 PM Re: New Usury Rates for Servicemembers
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andy, can you provide a link...I have read some sections, but have not found the "financial" implications. I DID find where the military would be provided access to chiropractic care...that's a good thing, but I didn't find anything on our impact. Being a military community in at least one market and near others, this could have a reaching affect on us...thanks in advance!
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#620313 - 11/01/06 07:11 PM Re: New Usury Rates for Servicemembers
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Search Thomas for HR5122 and look at 670, or see below.


SEC. 670. LIMITATIONS ON TERMS OF CONSUMER CREDIT EXTENDED TO SERVICEMEMBERS AND DEPENDENTS.

(a) Terms of Consumer Credit- Chapter 49 of title 10, United States Code, is amended by adding at the end the following new section:

`Sec. 987. Terms of consumer credit extended to members and dependents: limitations

`(a) Interest- A creditor who extends consumer credit to a covered member of the armed forces or a dependent of such a member shall not require the member or dependent to pay interest with respect to the extension of such credit, except as--

`(1) agreed to under the terms of the credit agreement or promissory note;

`(2) authorized by applicable State or Federal law; and

`(3) not specifically prohibited by this section.

`(b) Annual Percentage Rate- A creditor described in subsection (a) may not impose an annual percentage rate of interest greater than 36 percent with respect to the consumer credit extended to a covered member or a dependent of a covered member.

`(c) Mandatory Loan Disclosures-

`(1) INFORMATION REQUIRED- With respect to any extension of consumer credit (including any consumer credit originated or extended through the internet) to a covered member or a dependent of a covered member, a creditor shall provide to the member or dependent the following information orally and in writing before the issuance of the credit:

`(A) A statement of the annual percentage rate of interest applicable to the extension of credit.

`(B) Any disclosures required under the Truth in Lending Act (15 U.S.C. 1601 et seq.).

`(C) A clear description of the payment obligations of the member or dependent, as applicable.

`(2) TERMS- Such disclosures shall be presented in accordance with terms prescribed by the regulations issued by the Board of Governors of the Federal Reserve System to implement the Truth in Lending Act (15 U.S.C. 1601 et seq.).

`(d) Preemption-

`(1) INCONSISTENT LAWS- Except as provided in subsection (f)(2), this section preempts any State or Federal law, rule, or regulation, including any State usury law, to the extent that such law, rule, or regulation is inconsistent with this section, except that this section shall not preempt any such law, rule, or regulation that provides protection to a covered member or a dependent of such a member in addition to the protection provided by this section.

`(2) DIFFERENT TREATMENT UNDER STATE LAW OF MEMBERS AND DEPENDENTS PROHIBITED- States shall not--

`(A) authorize creditors to charge covered members and their dependents annual percentage rates of interest for loans higher than the legal limit for residents of the State; or

`(B) permit violation or waiver of any State consumer lending protections for the benefit of residents of the State on the basis of nonresident or military status of a covered member or dependent of such a member, regardless of the member's or dependent's domicile or permanent home of record.

`(e) Limitations- It shall be unlawful for any creditor to extend consumer credit to a covered member or a dependent of such a member with respect to which--

`(1) the creditor rolls over, renews, repays, refinances, or consolidates any consumer credit extended to the borrower by the same creditor with the proceeds of other credit extended to the same covered member or a dependent;

`(2) the borrower is required to waive the borrower's right to legal recourse under any otherwise applicable provision of State or Federal law, including any provision of the Servicemembers Civil Relief Act;

`(3) the creditor requires the borrower to submit to arbitration or imposes onerous legal notice provisions in the case of a dispute;

`(4) the creditor demands unreasonable notice from the borrower as a condition for legal action;

`(5) the creditor uses a check or other method of access to a deposit, savings, or other financial account maintained by the borrower, or the title of a vehicle as security for the obligation;

`(6) the creditor requires as a condition for the extension of credit that the borrower establish an allotment to repay an obligation; or

`(7) the borrower is prohibited from prepaying the loan or is charged a penalty or fee for prepaying all or part of the loan.

`(f) Penalties and Remedies-

`(1) MISDEMEANOR- A creditor who knowingly violates this section shall be fined as provided in title 18, or imprisoned for not more than one year, or both.

`(2) PRESERVATION OF OTHER REMEDIES- The remedies and rights provided under this section are in addition to and do not preclude any remedy otherwise available under law to the person claiming relief under this section, including any award for consequential and punitive damages.

`(3) CONTRACT VOID- Any credit agreement, promissory note, or other contract prohibited under this section is void from the inception of such contract.

`(4) ARBITRATION- Notwithstanding section 2 of title 9, or any other Federal or State law, rule, or regulation, no agreement to arbitrate any dispute involving the extension of consumer credit shall be enforceable against any covered member or dependent of such a member, or any person who was a covered member or dependent of that member when the agreement was made.

`(g) Servicemembers Civil Relief Act Protections Unaffected- Nothing in this section may be construed to limit or otherwise affect the applicability of section 207 of the Servicemembers Civil Relief Act (50 U.S.C. App. 527).

`(h) Regulations- (1) The Secretary of Defense shall prescribe regulations to carry out this section.

`(2) Such regulations shall establish the following:

`(A) Disclosures required of any creditor that extends consumer credit to a covered member or dependent of such a member.

`(B) The method for calculating the applicable annual percentage rate of interest on such obligations, in accordance with the limit established under this section.

`(C) A maximum allowable amount of all fees, and the types of fees, associated with any such extension of credit, to be expressed and disclosed to the borrower as a total amount and as a percentage of the principal amount of the obligation, at the time at which the transaction is entered into.

`(D) Definitions of `creditor' under paragraph (5) and `consumer credit' under paragraph (6) of subsection (i), consistent with the provisions of this section.

`(E) Such other criteria or limitations as the Secretary of Defense determines appropriate, consistent with the provisions of this section.

`(3) In prescribing regulations under this subsection, the Secretary of Defense shall consult with the following:

`(A) The Federal Trade Commission.

`(B) The Board of Governors of the Federal Reserve System.

`(C) The Office of the Comptroller of the Currency.

`(D) The Federal Deposit Insurance Corporation.

`(E) The Office of Thrift Supervision.

`(F) The National Credit Union Administration.

`(G) The Treasury Department.

`(i) Definitions- In this section:

`(1) COVERED MEMBER- The term `covered member' means a member of the armed forces who is--

`(A) on active duty under a call or order that does not specify a period of 30 days or less; or

`(B) on active Guard and Reserve Duty.

`(2) DEPENDENT- The term `dependent', with respect to a covered member, means--

`(A) the member's spouse;

`(B) the member's child (as defined in section 101(4) of title 38); or

`(C) 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 this section.

`(3) INTEREST- The term `interest' includes all cost elements associated with the extension of credit, including fees, service charges, renewal charges, credit insurance premiums, any ancillary product sold with any extension of credit to a servicemember or the servicemember's dependent, as applicable, and any other charge or premium with respect to the extension of consumer credit.

`(4) ANNUAL PERCENTAGE RATE- The term `annual percentage rate' has the same meaning as in section 107 of the Truth and Lending Act (15 U.S.C. 1606), as implemented by regulations of the Board of Governors of the Federal Reserve System. For purposes of this section, such term includes all fees and charges, including charges and fees for single premium credit insurance and other ancillary products sold in connection with the credit transaction, and such fees and charges shall be included in the calculation of the annual percentage rate.

`(5) CREDITOR- The term `creditor' means a person--

`(A) who--

`(i) is engaged in the business of extending consumer credit; and

`(ii) meets such additional criteria as are specified for such purpose in regulations prescribed under this section; or

`(B) who is an assignee of a person described in subparagraph (A) with respect to any consumer credit extended.

`(6) CONSUMER CREDIT- The term `consumer credit' has the meaning provided for such term in regulations prescribed under this section, except that such term does not include (A) a residential mortgage, or (B) a loan procured in the course of purchasing a car or other personal property, when that loan is offered for the express purpose of financing the purchase and is secured by the car or personal property procured.'.

(b) Clerical Amendment- The table of sections at the beginning of such title is amended by adding at the end the following new item:

`987. Terms of consumer credit extended to members and dependents: limitations.'.

(c) Effective Date-

(1) IN GENERAL- Except as provided in paragraph (2), section 987 of title 10, United States Code, as added by subsection (a), shall take effect on October 1, 2007, or on such earlier date as may be prescribed by the Secretary of Defense, and shall apply with respect to extensions of consumer credit on or after such effective date.

(2) AUTHORITY TO PRESCRIBE REGULATIONS- Subsection (h) of such section shall take effect on the date of the enactment of this Act.

(3) PUBLICATION OF EARLIER EFFECTIVE DATE- If the Secretary of Defense prescribes an effective date for section 987 of title 10, United States Code, as added by subsection (a), earlier than October 1, 2007, the Secretary shall publish that date in the Federal Register. Such publication shall be made not less than 90 days before that earlier effective date.

(d) Interim Regulations- The Secretary of Defense may prescribe interim regulations as necessary to carry out such section. For the purpose of prescribing such interim regulations, the Secretary is excepted from compliance with the notice-and-comment requirements of section 553 of title 5, United States Code. All interim rules prescribed under the authority of this subsection that are not earlier superseded by final rules shall expire no later than 270 days after the effective date of section 987 of title 10, United States Code, as added by this section.
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#620314 - 11/02/06 02:04 PM Re: New Usury Rates for Servicemembers
RR Joker Offline
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Wow, thanks Andy! That was MUCH easier...
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#650090 - 12/11/06 02:57 PM Re: New Usury Rates for Servicemembers RR Joker
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I saw this referenced in a BOL Q&A this morning and don't recall seeing anything and missed it in the thread. When was this announced?

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#651942 - 12/14/06 01:15 PM Re: New Usury Rates for Servicemembers Jan94
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Look at the usury article from the Executive Briefing (which you can subscribe to for free) for my recap.

In my article I indicate Sen. Tim Johnson (SD) wanted to review this provision. Since then, the Daily Briefing has reported on the Federal Register proposal and Sen. Johnson is ill, potentially suffering a stroke. This could revert the Senate back to a Republican majority and potentially with no one to champion this cause.

Net-net-net, sharpen your pencils and write comment letters. This affects you even if you don't commonly lend to a servicemember or their dependents. You'll have to ask all your applicants if they are.
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#651967 - 12/14/06 02:03 PM Re: New Usury Rates for Servicemembers Andy_Z
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Also note the recent Federal Register notice from the Department of Defense in which the Department asked for input in crafting the regulations that will be issued, assuming no change in the law as it stands. You'll find a link to it under the date 12/11/06 on our Top Stories page.

It's interesting to note that the Defense Department is already aware that the law as it stands may have the unintended consequence of making it more difficult for servicemembers and their dependents to find the credit they need.
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#651988 - 12/14/06 02:25 PM Re: New Usury Rates for Servicemembers John Burnett
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Mary Beth Guard and Jack Holzknecht plan to discuss the new law in detail during their January 12 webinar on Lending to Servicemembers. They'll also be covering the SCRA and special servicemember rights under the FCRA.
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#655813 - 12/21/06 06:48 PM Re: New Usury Rates for Servicemembers John Burnett
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Reading through this information, it appears real estate secured loans are exempt as well as loans secured by the proerty (i.e. auto) being purchased. Am I correct in assuming loans secured by liquid collateral, such as a CD, would not be exempt? Thank you.

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#655974 - 12/21/06 09:01 PM Re: New Usury Rates for Servicemembers goingtoexperts
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Although it's a good idea to wait to see what DoD's regulation says on the topic, my read of the legislation jibes with yours on this question.
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#656409 - 12/22/06 05:38 PM Re: New Usury Rates for Servicemembers John Burnett
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Thanks John! Merry Christmas!

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#661973 - 01/05/07 07:28 PM Re: New Usury Rates for Servicemembers goingtoexperts
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Has the regulation been published on this section yet?
Do we know where they are at with it?

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#662366 - 01/07/07 01:47 AM Re: New Usury Rates for Servicemembers river girl
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Comments don't close until Feb. 5, 2007. You still have time to shape this reg.
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#800123 - 08/22/07 03:09 PM Re: New Usury Rates for Servicemembers Andy_Z
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Have we heard anymore about this new usury law since the comment period closed in February? Thanks.

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#800924 - 08/23/07 01:20 PM Re: New Usury Rates for Servicemembers complygirl
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Nothing yet. We look at the Federal Register every morning to see if Defense has issued the final rules. Implementation is supposed to take place by October 1, but Defense will be hard-pressed to make that deadline with any kind of lead time.

Mary Beth Guard and Jack Holzknecht will be co-presenting a BOL Learning Connect webinar analyzing the new rules on September 28. Click on http://www.bollearningconnect.com and scroll down to September 28 for more information.
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#804666 - 08/29/07 01:55 PM Re: New Usury Rates for Servicemembers John Burnett
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John, I received information on the webinar this AM and was quite alarmed. Perhaps I'm way behind on this. Are we expected to be set for 10/01 even if regulations are not out?

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#805545 - 08/30/07 12:37 AM Re: New Usury Rates for Servicemembers upstateNY
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If the reg isn't out, there is nothing to follow at that point. Similar to the FCRA rules we're still waiting for.

The fear is if they release rules and want compliance in 30 days. That wouldn't be reasonable, but some of think this isn't reasonable already.
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#806770 - 08/31/07 07:48 AM Re: New Usury Rates for Servicemembers Andy_Z
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It is here in today's Federal Register and rest assured BOL is already doing an analysis to see what your new responsibilities will be under the new reg.
http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/07-4264.pdf
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#806817 - 08/31/07 12:49 PM Re: New Usury Rates for Servicemembers Andy_Z
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Andy, what in the world are you doing working at 3:48 AM???
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#807027 - 08/31/07 02:56 PM Re: New Usury Rates for Servicemembers Andy_Z
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Am I reading it right - we have to have these changes in place by 10/1/07?
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#807042 - 08/31/07 03:04 PM Re: New Usury Rates for Servicemembers Cowboys Fan
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Yes, that's the deadline. Fortunately, the covered transactions are so narrowly defined that most depository institutions should be able to avoid coverage by tightening policies.

Tax refund anticipation loans will be an exception. If you make these loans, you will need to implement the new regs.
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#807059 - 08/31/07 03:23 PM Re: New Usury Rates for Servicemembers Richard Insley
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Yes, I think the tax refund will affect us. Thanks
Edit: and I was wrong thanks to another reading of the reg
Last edited by Cowboys Fan; 08/31/07 06:02 PM.
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#807096 - 08/31/07 03:45 PM Re: New Usury Rates for Servicemembers Cowboys Fan
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Am I correct in reading that if we don't make any loans that qualify under this reg then we do not need to ask each customer if they are a covered borrower?
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