HONOLULU — The nation's credit unions, especially defense credit unions, are eagerly awaiting a final rule, due any day, setting new predatory lending rules for military personnel.
The proposed rule is aimed at high-rate lenders, like payday loan companies, check-cashers and title lenders and would have limited impact on credit unions by setting a maximum allowable 36% annual percentage rate-including all fees-charged military personnel and their dependents for payday loans, auto title loans and refund anticipation loans. But credit union officials are holding their breath as the Department of Defense completes its final rule, due by Sept. 1.
"I won't rest until one (Sept. 1)," said Roland 'Arty' Arteaga, director of the Defense CU Council, during NAFCU's annual convention last week.
The rulemakers are currently reviewing more than 140 comments on the proposed rules, many of them from consumer groups or others suggesting that the rule be expanded to cover other products as well, such as open-ended lines of credit, overdraft protection and other products, said Arteaga.
In addition, the DOD, under last year's legislation mandating the rules, can expand the rules any time it sees the need. "The Department has the right to go back and revisit that rule," he added.
The proposed rule sets a maximum 36% APR, including all fees, for all military personnel and their dependents; requires new APR disclosures, both oral and written; and puts the burden on credit unions and other lenders to monitor for eligibility.
It covers just three types of loans: payday loans up to $2,000 and as long as 91 days in duration; auto title loans under 181 days in maturity and refund anticipation loans.
The DOD plans to publish a final rule by Sept. 1 and make the rule effective 30 days later, on Oct. 1.
NAFCU, citing the short period before the rule becomes effective, has asked the DOD to extend the effective date, "because there are a number of technical hurdles to overcome," said Carrie Hunt, chief regulatory counsel for the association.
Still, attendees to the Defense CU Summit at last week's Convention, generally felt pleased with the limited scope of the rule.
"In my view," said NAFCU President Fred Becker, "the DOD has bent over backwards in their reasonable approach to this. They've been very, very reasonable on this."
"If we go beyond 36% we are on a slippery slope. If we go beyond 18% we are on a slippery slope," said Navy FCU President Cutler Dawson, referring to both the new DOD's and NCUA's interest rate ceilings.
The comment letters submitted to the DOD generally cite several concerns, according to David Chu, Under Secretary of Defense for Personnel and Readiness for the DOD, who spoke to the NAFCU group.
The banks and their trade associations, wanted a blanket exemption from the rule. But there will be no exemptions.
Several commenters said dual APRs, one to satisfy the Truth In Lending Act, the other to satisfy the new DOD rule, will confuse both borrowers and lenders. Others wondered about who will enforce the rules.
According to Chu, the DOD has been in contact with state regulators, several of whom have expressed readiness to monitor for compliance. Both the Federal Trade Commission and the regulators for each lender, including NCUA, will probably also be charged with monitoring for compliance. "Our (the DOD's) intent is to minimize our role as a regulator," said Chu.
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