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#818578 - 09/19/07 08:33 PM Re: DoD issues proposed Military Lending Rules RR Joker
Richard Insley Offline
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Originally Posted By: RR joker
That was a creative schedule, Richard!

What do you think about simplifying collection of the payments by forgiving the final payment when it comes due? This magnanimous gesture would not be guaranteed or written in the note, just a nice "thank you" for being such a good customer.
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Lending to Servicemembers (SCRA, JWNDAA), War, Terrorism
#819080 - 09/20/07 02:31 PM Re: DoD issues proposed Military Lending Rules travelgirl
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Originally Posted By: travelgirl
Still muddling through this as I'm sure others are. I know we don't make payday loans or tax anticipation loans as defined in the federal register. We have however made consumers loans for short periods of time (under 181 days) secured by the consumers vehicle. Based on the definition given in the FR, it sounds like we are making one type of covered loan which means we would have to follow all of the other requirements (provide notice to all borrowers that they are not a covered borrower plus all of the other disclosures - MAPR, etc. if we do make a covered loan to a covered borrower).

I am considering changing our loan policy for just these types of loans to say they can not be made for less than 7 months. That way they would not meet the definition of a vehicle title loan. Right away I thought about fair lending issues, but we do have other loan programs (open-ended, ready credit, unsecured loans) that could be done in place of these - and for any time frame - should the need arise. So I don't think I would be excluding someone unintentionally. Not offering a consumer loan (non-purchase money) secured by a vehicle at all isn't an option. Yes, I know - "you should have commented"

Any thoughts on this? I understand the intent of the reg and I think these types of protections are important, but they are burdensome to those of us who may make ones of these deals once every great while.

Help - the deadline is fast approaching.



We're also in a similar situation, and have decided to just make it our policy to not to vehicle title loans for a term less than 180 days.

One question that my boss brought up that I hadn't thought of (and couldn't find in the reg)...
What if we use a vehicle title as additional collateral in an unsecured loan situation (like a car title held by us worth $3000 on an unsecured $10K loan) for a term less than 180 days...is that exempt somehow?
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#819200 - 09/20/07 03:34 PM Re: DoD issues proposed Military Lending Rules MadisonCali
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I don't see how it would be. The loan is secured by a titled vehicle. Abundance of Caution is not going to get you an exemption IMO.
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#819373 - 09/20/07 04:54 PM Re: DoD issues proposed Military Lending Rules Dan Persfull
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Originally Posted By: Dan Persfull
Abundance of Caution is not going to get you an exemption IMO.

I agree. For staff training purposes, this situation becomes bullet #2 on the abundance-of-caution-collateral-does-not-create-a-universal-exemption slide right after "flood insurance."
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#819374 - 09/20/07 04:57 PM Re: DoD issues proposed Military Lending Rules Dan Persfull
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I agree with Dan - no Abundance of Caution out.

I am recommending to management that we amend our loan policy on vehicle title loans to state they must be at least 7 months in length. I did give them the option of leaving everything the same and I outlined the requirements if we leave things "as-is." I gave them until tomorrow to respond. Of course we wouldn't be able to make any vehicle title loans until I can get the MAPR to work with ARTA Lending. The chances of us actually needing it are small, but I don't think it would be prudent to offer something until the correct procedures are in place.

I'm guessing they will go with my recommendation (at least I hope so!)

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#819381 - 09/20/07 05:05 PM Re: DoD issues proposed Military Lending Rules travelgirl
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Originally Posted By: travelgirl
I don't think it would be prudent to offer something until the correct procedures are in place.

The fact that your management is considering this suggests that you've found a way to cover implementation costs, assume the risks of massive penalties for violations, absorb higher losses, and still charge no more than 36% MAPR.
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#820529 - 09/21/07 05:05 PM Re: DoD issues proposed Military Lending Rules Dan Persfull
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Your state interest rates and loan terms may require equal payments (or near equal anyway). My point is, there may be more than one issue to consider as you create loan terms. You'll also need to ensure your loan software and system can handle these creative terms.
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#820544 - 09/21/07 05:13 PM Re: DoD issues proposed Military Lending Rules Richard Insley
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Originally Posted By: Richard Insley
Originally Posted By: travelgirl
I don't think it would be prudent to offer something until the correct procedures are in place.

The fact that your management is considering this suggests that you've found a way to cover implementation costs, assume the risks of massive penalties for violations, absorb higher losses, and still charge no more than 36% MAPR.


Not necessarily. And I am thinking a little creatively here. I worked in a military bank for MANY years. These banks and CUs are there by contract. This could be a required product, done sparingly, in order to meet contractual requirements that are real or perceived. It could be a loss-leader on the loan menu intended help support cross-selling other products and a CRA item as it beats sending the person to a pawn shop in many cases.
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#824858 - 09/27/07 06:31 PM Re: DoD issues proposed Military Lending Rules Andy_Z
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I know this is going to sound dumb, but here goes: we don't make any loans that come anywhere near a 36% APR. Isn't that a usurous or predatory level?
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#824882 - 09/27/07 06:41 PM Re: DoD issues proposed Military Lending Rules Nanwa
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Smaller loans for shorter periods can result in fairly high APRs, particularly if fees are imposed that have to be included in the finance charge.

One of the requirements of the new rule for covered loans is that certain fees that would ordinarily be excluded from the FC be added to the FC to calculate a Military APR (MAPR). That can kick the result up to or above 36% without triggering state usury laws.
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#824931 - 09/27/07 07:00 PM Re: DoD issues proposed Military Lending Rules John Burnett
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We don't make short term loans. All our car loans are at least a year, usually 3. No pay day loans or tax refund loans. So I think we are safe. Still, worth discussion at the next committee meeting.
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#825515 - 09/28/07 02:38 PM Re: DoD issues proposed Military Lending Rules Nanwa
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Just a caution that it's not car loans in the traditional sense. It's loans made for a reason other than purchase of a vehicle but where it is secured by the vehicle - don't just look at policy - ask your consumer lenders if they ever make this type of loan...you may be surprised. For example, you may have a customer needing money for a vacation, attorneys fees, education, etc. and the security they offer up is their vehicle - that is a vehicle title loan - if the term of that loan is 181 days or less it could potentially fall under the requirements.
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#825834 - 09/28/07 06:49 PM Re: DoD issues proposed Military Lending Rules CalifDreamin
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a $1,000 90 day note @ 15% secured by a car Title with $52.00 in loan fees = 36.086% APR

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#826584 - 10/01/07 04:30 PM Re: DoD issues proposed Military Lending Rules Oursisnottoreasonwhy
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I recommend you look at Oursis... example and ENSURE that your policy says you don't make these and you verify you don't. It is the inadvertent loan that will bite you. And consider what may be in those loan fees, interest, admin fees, credit insurance...

Even if you don't believe you have any of these loans, you need to review the reg, and train your lenders. This is, in a sense, what the SSCRA was prior to 1990 when few lenders knew much about it. It was in the back of their minds, but was used very little.
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#830621 - 10/08/07 11:09 PM Re: DoD issues proposed Military Lending Rules Andy_Z
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Just to be super clear - An unsecured loan for $500 for 60 days - not covered by SCRA?

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#831386 - 10/10/07 02:24 PM Re: DoD issues proposed Military Lending Rules Bankerbird
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Originally Posted By: Bankerbird
Just to be super clear - An unsecured loan for $500 for 60 days - not covered by SCRA?


This IS covered by the new Department of Defense rules because it comes under the definition of a pay-day loan (closed-end credit, 91 days or less, amount financed up to $2,000)
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#831593 - 10/10/07 04:12 PM Re: DoD issues proposed Military Lending Rules LoisLane
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Originally Posted By: LoisLane
This IS covered by the new Department of Defense rules because it comes under the definition of a pay-day loan (closed-end credit, 91 days or less, amount financed up to $2,000)


Actually, it would only be a payday loan if the borrower also provides the creditor with a check that they agree not to deposit or present for more than 1 day, OR they authorize the creditor to initiate a debit or debits to the customers deposit account after one or more days.

Just because it's closed end, less than 91 days, and less than $2,000 doesn't automatically make it a payday loan.

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#832034 - 10/10/07 10:00 PM Re: DoD issues proposed Military Lending Rules MN Banker
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In the recent BOL seminar on Lending to Servicemembers, there was a question regarding CD secured loans. The response referenced section 232.8(a)(5) and stated that "the section prohibits the use of a check or other method of access to a deposit, savings, or other financial account maintained by the covered borower as security for the obligation. A CD is a method of accessing a deposit account." First, our bank has indicated that they do not make any of the three types of covered loans, therefore they are not identifying who is a covered borrower. The bank's procedure has been to tie the length of the loan to the maturity date of the CD. The situation is: they have a borrower who has a $2,000 CD and she wants to borrow $1,500 and use her CD as collateral. Her CD matures in 60 days so that would be the term of the loan (60 days). Is this the type of scenario that is prohibited by this section? Also, the bank does allow borrowers to authorize their loan payments to be debited from their checking or savings accounts. Is this what the rules are referencing in defining pay day loans "or they authorize the creditor to initiate a debit or debits to the customers deposit account after one or more days."? If in the above scenario, the borrower did authorize repayment from their checking account, would that then make that particular loan a "payday loan"? It's somewhat confusing and we're trying to be sure we understand this. Thanks for the help in advance.

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#833581 - 10/12/07 03:07 PM Re: DoD issues proposed Military Lending Rules Jan94
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I think we can play with the definitions a bit here. I'm exploring, not necessarily opining here. The question is, do you intend on paying the loan with the CD, and is that what we agree to?

A payday loan condition is that the borrower:
(B) Receives funds from and incurs
interest and/or is charged a fee by a
creditor,


a given

and contemporaneously with
the receipt of funds, authorizes the
creditor to initiate a debit or debits to
the covered borrower’s deposit account
(by electronic fund transfer or remotely
created check) after one or more days.


If the borrower has promised to pay the loan with other funds they haven't authorized you to debit the account, other than as a default remedy, which is separate.

This provision does not apply to any
right of a depository institution under
statute or common law to offset
indebtedness against funds on deposit
in the event of the covered borrower’s
delinquency or default.


If the borrower says, I don't want the CD prepayment penalty, use it as collateral and take funds from the CD when the loan matures, I believe that is a payday loan.
Last edited by Andy Z; 10/12/07 03:12 PM.
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#833825 - 10/12/07 05:46 PM Re: DoD issues proposed Military Lending Rules Andy_Z
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Andy, I could be wrong, but I don't think the exception:
"This provision does not apply to any
right of a depository institution under
statute or common law to offset
indebtedness against funds on deposit
in the event of the covered borrower’s
delinquency or default" applies here.
In most security agreements, where the debtor grants a security interest in the CD or savings account, the debtor "authorizes" the creditor to debit the CD/savings in the event of default -- this is a contractual provision and is not a "right ... under statute or common law to offset.." So I'm thinking that if your security agreement grants you the right to apply the CD to the debt (and the loan is 91 days or less and $2000 or less) then it's a "payday" loan under the statute.

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#834527 - 10/15/07 03:20 PM Re: DoD issues proposed Military Lending Rules ToTo
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The event of default in my mind triggers setoff. I agree on the CD as security, but there is usually a blanket "all deposits secure the loan" clause as well and the right to setoff is in both the loan contract and the deposit agreement. In that sense, all deposits always secure the loan and common law setoff, if that isn't it, would never be needed.

It is interesting that you differentiate the common law setoff from the contractual right. I didn't think that way. It would seem that is a finer point of law. It certainly makes me wonder. Is that your opinion above or are you aware that these are different? (I'm asking, I am not a lawyer.)
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#834724 - 10/15/07 06:17 PM Re: DoD issues proposed Military Lending Rules Andy_Z
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Yes, Andy, that's what I think -- the two are different: One right of offset is provided by statute or common law (and the rules are different depending on the state, but some states require identity of parties, that the debt is liquidated, and other things-- in some states there are specific statutes that apply to a bank's right of offset in funds on deposit), and the other right appears in the contract/security agreement. The definition of the "payday" loan (232.3(b)(1)(i)((B) says the covered borrower "CONTEMPORANEOUSLY with the receipt of funds, authorizes the creditor to initiate a debit or debits to the covered borrower's deposit account ... after one or more days. This provision does not apply to any right of a depository institution under statute or common law to offset indebtedness against funds on deposit in the event of the covered borrowere's delinquency or default." So for it to be a payday loan (in this respect) the authorization has to be "contemporaneous" with the extension of credit to debit the account -- which would not cover language in a deposit account contract, unless executed contemporaneously, but would cover general language in the note, or specific language in the security agreement, that gives the creditor the contractual right to setoff funds -- which should also be disclosed in the TIL in the security interest disclosure.

I did not consider any of this until I saw Halito's post of the question -- so I'm not sure of the answer either, but am just trying to get to the bottom of it so that we do this right. I hope you and others will respond back.

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#836956 - 10/18/07 01:25 AM Re: DoD issues proposed Military Lending Rules ToTo
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You make a good case. It isn't black and white and I don't believe we'll see any case law any time soon. The conservative CO that I am still says "warning Will Robinson, stay the heck away."
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#838787 - 10/19/07 07:35 PM Re: DoD issues proposed Military Lending Rules Andy_Z
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Regarding the new DOD laws, if a bank offers a credit product that would fall under the new laws, such as short-term vehicle title loans, can they exclude this product from being offered to any "covered borrower" only without having a possible issue with Regulation B? I know employment is not one of the prohibited basis, but I'm concerned with potential disparate impact issues or could the bank justify the non-offering of the product to "covered borrowers" as a business necessity?

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#839036 - 10/19/07 09:42 PM Re: DoD issues proposed Military Lending Rules Hi
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We're not excluding the servicemembers from obtaining a non-purchase money vehicle-secured loan. We're offering that loan to servicemembers (or dependents) with a term of at least 182 days. Non-military borrowers can still obtain a shorter term loan. There is no disparate impact because the service members would be getting more favorable terms (longer term) than they might have requested. Additionally, it would be impossible to make a profitable loan to a service member if the MAPR has to be 36% or less. That would mean no usual loan fees (we can charge a $25 loan fee in Texas), no credit insurance and/or an unusually low loan rate. For those types of loans, we typically charge a fairly high rate in order to make the loan profitable for the bank. I would think it would be "somehow" worse to offer the loan product to servicemembers but not allow the servicemembers to purchase credit insurance because doing so would jack up the MAPR. 'Course we all know that certain groups (consumer protection groups and insurance groups) think that credit insurance is evil on its own. The downside is that for every application for such a loan, we'll have to have the applicant read and sign the standard acknowledgment as to his or her active duty military service member status (or non-status) or dependent.
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