[Federal Register Volume 60, Number 3 (Thursday, January 5, 1995)]
[Rules and Regulations]
[Pages 1720-1735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-224]



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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Parts 43a, 112, and 113

[DoD Directive 1344.9 and DoD Instruction 1344.12]
RIN 0790-AF65 and RIN 0790-AF80


Indebtedness of Military Personnel

AGENCY: Office of the Secretary, Department of Defense.

ACTION: Final rule.

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SUMMARY: 5 U.S.C. 5520a(k) required the Department of Defense to 
``promulgate regulations'' by April 4, 1994 for the involuntary 
allotment of pay from members of the Armed Forces for debts reduced to 
judgments. The Department published its proposed rule in the Federal 
Register on April 26, 1994 (59 FR 21713). This final rule satisfies 5 
U.S.C. 5520a(k) by promulgating regulations with regard to members of 
the Armed Forces which include provisions for the involuntary allotment 
of the pay of a member of the Armed Forces for indebtedness owed a 
third party as determined by the final judgment of a court of competent 
jurisdiction, and as further determined by competent military or 
executive authority, as appropriate, to be in compliance with the 
procedural requirements of the Soldiers' and Sailors' Civil Relief Act 
of 1940; and which gives consideration for the absence of a member of 
the Armed Forces from an appearance in a judicial proceeding resulting 
from exigencies of military duty.

EFFECTIVE DATE: January 1, 1995.

FOR FURTHER INFORMATION CONTACT:
Major Alan L. Cook, (703) 697-3387.

SUPPLEMENTARY INFORMATION: Following publication of the Department of 
Defense's proposed rule, the Department received several public 
comments. After review of the comments, the Department amended its 
proposed rule accordingly. Some of the major changes included 
increasing the percentage of a member's pay that could be collected by 
a debtor pursuant to an involuntary allotment; deleting the requirement 
that a judgment could not be more than two years old in order for the 
Department to process an involuntary allotment request; and 
establishing appeal procedures for debtors from determinations by 
commanders that preclude collection by involuntary allotment because of 
exigencies of military duties. Additionally, the Coast Guard 
coordinated with the Department of Defense to be included in the 
regulations published by the Department of Defense. Note, the 
Department originally intended to publish its final regulation, which 
included both policy and procedural provisions, in the form of a DoD 
directive. However, due to internal Department of Defense guidance 
published in DoD 5025.1-M\1\ (August 1994), directives may no longer 
include procedures. The procedures that were contained in the proposed 
rule have been placed in a DoD instruction. Accordingly, the final rule 
is now in two parts. The first part, 32 CFR part 112, is based on the 
DoD directive that contains broad policy guidance. The second part, 32 
CFR part 113, reflects the DoD instruction and contains the 
Department's procedural guidance. The substance of both parts are 
derived from the proposed rule as originally published on April 26. 
Additionally, it has been determined that 32 CFR parts 112 and 113 are 
not significant regulation actions. The rules do not: (1) Have an 
annual effect on the economy of $100 million or more or adversely 
affect in a material way the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or tribal governments or communities; (2) 
Create a serious inconsistency or otherwise interfere with an action 
taken or planned by another agency; (3) Materially alter the budgetary 
impact of entitlements, grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) Raise novel legal 
or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in this Executive Order. It has 
also been determined that this rule is not subject to the Regulatory 
Flexibility Act (5 U.S.C. 601) because it will not have a significant 
adverse economic impact on a substantial number of small entities. The 
primary financial effect on administering the rule will be a reduction 
in administrative costs and other burdens resulting from the 
simplification and clarification of certain policies. Additionally, it 
has been determined that 32 CFR part 112 does not impose any reporting 
or recordkeeping requirements under the Paperwork Reduction Act of 1980 
(44 U.S.C. 3501-3520). 32 CFR part 113 imposes an information 
collection requirement for which the paperwork has been completed. The 
OMB approval number is 0704-0367. Specifically, OMB provided their 
approval for the collection of information required by DD Form 2653, 
appendix C to 32 CFR part 113, that was originally intended to be 
included in the DoD directive but had to be moved to the DoD 
instruction (for internal reasons as noted above). Finally, application 
forms for involuntary allotment (DD Form 2653, ``Involuntary Allotment 
Application,'' as described in 32 CFR part 113, appendix C) may be 
obtained from the Defense Finance and Accounting Service, Cleveland 
Center, Code L, PO Box 998002, Cleveland, Ohio 44199-8002, telephone 
(216) 522-5301.

    \1\Copies may be obtained, at cost, from the National Technical 
Information Service, 5285 Port Royal Road, Springfield, VA 22161.
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List of Subjects in 32 CFR Parts 43a, 112 and 113

    Claims, Credit, Military personnel.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.

    Accordingly, under the authority of 10 U.S.C. 301, Title 32 of the 
Code of Federal Regulations, Chapter I, Subchapter C, is amended to 
read as follows:

    Dated: December 28, 1994.

PART 43a--[REMOVED]

    1. Part 43a is removed.
    2. 32 CFR parts 112 and 113 are added to read as follows: 
[[Page 1721]] 

PART 112--INDEBTEDNESS OF MILITARY PERSONNEL

Sec.
112.1 Purpose.
112.2 Applicability and scope.
112.3 Definitions.
12.4 Policy.
112.5 Responsibilities.

    Authority: 5 U.S.C. 5520a(k) and 10 U.S.C. 113(d).


Sec. 112.1  Purpose.

    This part: (a) Updates policy and responsibilities governing 
delinquent indebtedness of members of the Military Services, and 
prescribes policy for processing involuntary allotments from the pay of 
military members to satisfy judgment indebtedness in accordance with 5 
U.S.C. 5520a(k).
    (b) Establishes responsibility for procedures implementing 5 U.S.C. 
5520a(k), 15 U.S.C. 1601 note, 1601-1614, 1631-1646, 1661-1665a, 1666-
1666j, and 1667-1667e (``Truth in Lending Act''), and 15 U.S.C. 1601 
note, and 1692-1692o (``Fair Debt Collection Practices Act'').
    (c) Designates the Director, Defense Finance and Accounting Service 
(DFAS), as the Department of Defense Executive Agent for forms 
necessary to process involuntary allotments. The Executive Agent shall 
publish, print, stock, distribute, and revise forms.


Sec. 112.2  Applicability and scope.

    (a) Applies to the Office of the Secretary of Defense, the Military 
Departments (including the Coast Guard when it is not operating as a 
Military Service in the Navy by agreement with the Department of 
Transportation), the Chairman of the Joint Chiefs of Staff, the Unified 
Combatant Commands, the Inspector General of the Department of Defense, 
the Defense Agencies, and the Department of Defense Field Agencies 
(hereafter referred to collectively as ``the Department of Defense 
Components''). The term ``Military Services,'' as used herein, refers 
to the Army, the Navy, the Air Force, the Marine Corps, and the Coast 
Guard.
    (b) The provisions of this part do not apply to:
    (1) Indebtedness of a member of the Military Services to the 
Federal Government.
    (2) Processing of indebtedness claims to enforce judgments against 
military members for alimony or child support.
    (3) Claims by State or municipal governments under the processing 
guidelines for complaints, including tax collection actions.


Sec. 112.3  Definitions.

    (a) Absence. A member's lack of an ``appearance,'' at any stage of 
the judicial process, as evidenced by failing to physically attend 
court proceedings; failing to be represented at court proceedings by 
counsel of the member's choosing; or failing to timely respond to 
pleadings, orders, or motions.
    (b) Court. A court of competent jurisdiction within any State, 
territory, or possession of the United States.
    (c) Debt collector. An agency or agent engaged in the collection of 
debts described under 15 U.S.C. 1601 note and 1692-1692o (``Fair Debt 
Collection Practices Act'').
    (d) Exigencies of military duty. A military assignment or missing-
essential duty that, because of its urgency, importance, duration 
location, or isolation, necessitates the absence of a member of the 
Military Services from appearance at a judicial proceeding or prevents 
the member from being able to respond to a notice of application for an 
involuntary allotment. Exigency of military duty is normally presumed 
during periods of war, national emergency, or when the member is 
deployed.
    (e) Judgment. A final judgment must be a valid, enforceable order 
or decree, by a court from which no appeal may be taken, or from which 
no appeal has been taken within the time allowed, or from which an 
appeal has been taken and finally decided. The judgment must award a 
sum certain amount and specify that the amount is to be paid by an 
individual who, at the time of application for the involuntary 
allotment, is a member of the Military Services.
    (f) Just financial obligations. A legal debt acknowledged by the 
military member in which there is no reasonable dispute as to the facts 
or the law; or one reduced to judgment that conforms to the Soldiers' 
and Sailors' Civil Relief Act of 1940, as amended (50 U.S.C. appendix 
sections 501-591).
    (g) Member of the military services. Any member of the Regular 
Army, Air Force, Navy, Marine Corps, or Coast Guard, and any member of 
a Reserve component of the Army, Air Force, Navy, Marine Corps or Coast 
Guard (including the Army National Guard of the United States and the 
Air National Guard of the United States) on active duty pursuant to 10 
U.S.C. 672, for a period in excess of 180 days at the time an 
application for involuntary allotment is received by the Director, 
DFAS, or Commanding Officer, Coast Guard Pay and Personnel Center. The 
following shall not be considered members:
    (1) Retired personnel, including those placed on the temporary or 
permanent disabled retired list; and
    (2) Personnel in a prisoner of war or missing in action status, as 
determined by the Secretary of the Military Department concerned.


Sec. 112.4  Policy.

    (a) Members of the Military Services are expected to pay their just 
financial obligations in a proper and timely manner. A Service member's 
failure to pay a just financial obligation may result in disciplinary 
action under the Uniform Code of Military Justice (10 U.S.C. 801-940) 
or a claim pursuant to Article 139 of the Uniform Code of Military 
Justice (10 U.S.C. 939). Except as stated in this section, and in 
paragraphs (a)(1) and (a)(2) of this section, the Department of Defense 
Components have no legal authority to require members to pay a private 
debt or to divert any part of their pay for satisfaction of a private 
debt.
    (1) Legal process instituted in civil courts to enforce judgments 
against military personnel for the payment of alimony or child support 
shall be acted on in accordance with 42 U.S.C. 651-665, and Part 7, 
Chapter 7, Section B. of Department of Defense 7000.14-R\1\, Volume 7, 
Part A.

    \1\Copies may be obtained, at cost, from the National Technical 
Information Service, 5285 Port Royal Road, Springfield, VA 22161.
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    (2) Involuntary allotments under 5 U.S.C. 5520a(k) shall be 
established in accordance with this part.
    (b) Whenever possible, indebtedness disputes should be resolved 
through amicable means. Claimants may contact military members by 
having correspondence forwarded through the military locator services 
for an appropriate fee, as provided under DoD Instruction 7230.7.\2\

    \2\See footnote 1 to Sec. 112.4(a)(1)
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    (c) The following general policies apply to processing of debt 
complaints (not involuntary allotments):
    (1) Debt complaints meeting the requirements of this part, and 
procedures established by the Under Secretary of Defense (Personnel and 
Readiness), as required by 32 CFR part 113, shall receive prompt 
processing assistance from commanders.
    (2) Assistance in indebtedness matters shall not be extended to 
those creditors:
    (i) Who have not made a bona fide effort to collect the debt 
directly from the military member;
    (ii) Whose claims are patently false and misleading; or
    (iii) Whose claims are obviously exorbitant;
    (3) Some States have enacted laws that prohibit creditors from 
contacting a debtor's employer about indebtedness or 
[[Page 1722]] communicating facts on indebtedness to an employer unless 
certain conditions are met. The conditions that must be met to remove 
this prohibition are generally such things as reduction of a debt to 
judgment or obtaining written permission of the debtor.
    (i) At Department of Defense installations in States having such 
laws, the processing of debt complaints shall not be extended to those 
creditors who are in violation of the State law. Commanders may advise 
creditors that this rule has been established because it is the general 
policy of the Military Services to comply with State law when that law 
does not infringe upon significant military interests.
    (ii) The rule in Sec. 112.4(c)(3)(i) shall govern even though a 
creditor is not licensed to do business in the State where the debtor 
is located. A similar practice shall be started in any State enacting a 
similar law regarding debt collection.
    (4) Under 15 U.S.C. 1601 note and 1692-1692o (``Fair Debt 
Collection Practices Act''), contact by a debt collector with third 
parties, such as commanding officers, for aiding debt collection is 
prohibited without a court order, or the debtor's prior consent given 
directly to the debt collector. Creditors are generally exempt from 
this requirement, but only when they collect on this own behalf.
    (d) The following general policies apply to processing of 
involuntary allotments under 5 U.S.C. 5520a(k).
    (1) In those cases in which the indebtedness of a military member 
has been reduced to a judgment, an application for an involuntary 
allotment from the pay of the member may be made under procedures 
prescribed by the Under Secretary of Defense (Personnel and Readiness). 
Such procedures shall provide the exclusive remedy available under 5 
U.S.C. 5520a(k).
    (2) An involuntary allotment from a member's pay shall not be 
started in any indebtedness case in which:
    (i) Exigencies of military duty caused the absence of the member 
from the judicial proceeding at which the judgment was rendered; or
    (ii) There has not been compliance with the procedural requirements 
of the Soldiers' and Sailors' Civil Relief Act of 1940, 50 U.S.C. 
appendix sections 501-591.


Sec. 112.5  Responsibilities.

    (a) The Under Secretary of Defense for Personnel and Readiness 
shall:
    (1) In consultation with the Under Secretary of Defense 
(Comptroller), establish procedures for the processing of debt 
complaints and involuntary allotments.
    (2) Have policy oversight on the assistance to be provided by 
military authorities to creditors of military personnel who have debt 
complaints, and on involuntary allotment of military pay.
    (b) The Under Secretary of Defense (Comptroller) shall:
    (1) Establish, as necessary, procedures supplemental to those 
promulgated by the Under Secretary of Defense (Personnel and Readiness) 
to administer and process involuntary allotments from the pay of 
members of the Military Services; this includes the authority to 
promulgate forms necessary for the efficient administration and 
processing of involuntary allotments.
    (2) Ensure that the Director, DFAS:
    (i) Implements procedures established by the Under Secretary of 
Defense (Personnel and Readiness) and the Under Secretary of Defense 
(Comptroller).
    (ii) Considers whether the Soldiers' and Sailors' Civil Relief Act 
of 1940, as amended (50 U.S.C. appendix sections 501-591), has been 
complied with under 5 U.S.C. 5520a(k) prior to establishing an 
involuntary allotment against the pay of a member of the Military 
Services.
    (iii) Acts as the Department of Defense Executive Agent for 
Department of Defense forms necessary to process involuntary 
allotments.
    (c) The Heads of the Department of Defense Components shall urge 
military personnel to meet their just financial obligations, since 
failure to do so damages their credit reputation and affects the public 
image of all Department of Defense personnel. See DoD Directives 
1000.10,\3\ 1000.11,\4\ and 5500.7.\5\

    \3\See footnote 1 to Sec. 112.4(a)(1).
    \4\See footnote 1 to Sec. 112.4(a)(1).
    \5\See footnote 1 to Sec. 112.4(a)(1).
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    (d) The Secretaries of the Military Departments shall:
    (1) Establish, as necessary, procedures to administer and process 
involuntary allotments from the pay of members of the Military 
Services. This includes designating those commanders, or other 
officials who may act in the absence of the commander, who shall be 
responsible for determining whether a member's absence from a judicial 
proceeding was caused by exigencies of military duty, and establishing 
appeal procedures regarding such determinations.
    (2) Require commanders to counsel members to pay their just debts, 
including complying, as appropriate, with court orders and judgments 
for the payment of alimony or child support.
    (3) Emphasize prompt command action to assist with the processing 
of involuntary allotment applications.
    (e) The Chief, Office of Personnel and Training, for the Coast 
Guard shall:
    (1) Establish, as necessary, procedures supplemental to those 
promulgated by the Under Secretary of Defense (Personnel and Readiness) 
to administer and process involuntary allotments from the pay of 
members of the Military Services; this includes the authority to 
promulgate forms necessary for the efficient administration and 
processing of involuntary allotments.
    (2) Ensure that the Commanding Officer, Coast Guard Pay and 
Personnel Center:
    (i) Implements procedures established by the Under Secretary of 
Defense (Personnel and Readiness) and Chief, Office of Personnel and 
Training.
    (ii) Considers whether the Soldiers' and Sailors' Civil Relief Act 
of 1940, as amended (50 U.S.C. appendix sections 501-591), has been 
complied with under 5 U.S.C. 5520a(k) prior to establishing an 
involuntary allotment against the pay of a member of the Military 
Services.
    (iii) Acts as the Coast Guard Executive Agent for forms necessary 
to process involuntary allotments.

PART 113--INDEBTEDNESS OF MILITARY PERSONNEL

Sec.
113.1  Purpose.
113.2  Applicability.
113.3  Definitions.
113.4  Policy.
113.5  Responsibilities.
113.6  Procedures.
Appendix A to part 113--Certificate of Compliance
Appendix B to part 113--Standards of Fairness
Appendix C to part 113--Sample DD Form 2653, ``Involuntary Allotment 
Application''
Appendix D to part 113--Sample DD Form 2654, ``Involuntary Allotment 
Notice and Processing''

    Authority: 5 U.S.C. 5520a(k) and 10 U.S.C. 113(d).


Sec. 113.1  Purpose.

    This part implements policy, assigns responsibilities, and 
prescribes procedures under 32 CFR part 112 governing delinquent 
indebtedness of members of the Military Services.


Sec. 113.2  Applicabichlity.

    This part applies to the Office of the Secretary of Defense, the 
Military Departments (including the Coast Guard when it is not 
operating as a Military [[Page 1723]] Service in the Navy by agreement 
with the Department of Transportation), the Chairman of the Joint 
Chiefs of Staff, the Unified Combatant Commands, the Inspector General 
of the Department of Defense, the Defense Agencies, and the DoD Field 
Activities (hereafter referred to collectively as ``the DoD 
Components''). The term ``Military Services,'' as used herein, refers 
to the Army, the Navy, the Air Force, the Marine Corps, and the Coast 
Guard.


Sec. 113.3  Definitions.

    (a) Appearance. The presence and participation of a member of the 
Military Services, or an attorney of the member's choosing, throughout 
the judicial proceeding from which the judgment was issued that is the 
basis for a request for enforcement through involuntary allotment.
    (b) Applicant. The original judgment holder, a successor in 
interest, or attorney or agent thereof who requests an involuntary 
allotment from a member of the Military Services pursuant to DoD 
Directive 1344.9.\1\

    \1\Copies may be obtained, at cost, from the National Technical 
Information Service, 5285 Port Royal Road, Springfield, VA 22161.
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    (c) Pay subject to involuntary allotment. For purposes of complying 
with 32 CFR part 112 and 5 U.S.C. 5520a(k), pay subject to involuntary 
allotment shall be determined by:
    (1) Including:
    (i) Basic pay but excluding reduction for education for education 
benefits under section 38 U.S.C. 1411 (``New G.I. Bill'').
    (ii) Special pay (including enlistment and reenlistment bonuses).
    (iii) Incentive pay.
    (iv) Accrued leave payments (basic pay portion only).
    (v) Readjustment pay.
    (vi) Severance pay (including disability severance pay).
    (vii) Lump-sum Reserve bonus.
    (viii) Inactive duty training pay.
    (2) Excluding:
    (i) Retired pay (including) disability retired pay).
    (ii) Retainer pay.
    (iii) Separation pay, Voluntary Separation Incentive (VSI), and 
Special Separation Benefit (SSB).
    (iv) Allowances paid under titles 10 and 37 of the United States 
Code (e.g., Chapter 53 of title 10 and Chapter 7 of title 37, 
respectively) and other reimbursements for expenses incurred in 
connection with duty in the Military Service or allowances in lieu 
thereof.
    (v) Payments not specifically enumerated in Sec. 113.3(c)(1).
    (3) After including the items in Sec. 113.3(c)(1), subtracting the 
following pay items to compute the final earnings value of the pay 
subject to involuntary allotment:
    (i) Federal and State employment and income tax withholding (amount 
limited only to that which is necessary to fulfill member's tax 
liability).
    (ii) FICA tax.
    (iii) Amounts mandatorily withheld for the United States Soldiers' 
and Airmen's Home.
    (iv) Deductions for the Servicemen's Group Life Insurance coverage.
    (v) Retired Serviceman's Family Protection Plan.
    (vi) Indebtedness to the United States.
    (vii) Fines and forfeitures ordered by a court-martial or a 
commanding officer.
    (viii) Amounts otherwise required by law to be deducted from a 
member's pay (except payments under 42 U.S.C. 659, 661, 662, and 665).
    (d) Preponderence of the evidence. A greater weight of evidence 
that is more credible and convincing to the mind. That which best 
accords with reason and probability. (See Black's Law Dictionary\2\)

    \2\Black's Law Dictionary, Fourth Edition, West Publishing 
Company, Saint Paul, Minnesota (1952).
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    (e) Proper and Timely Manner. A manner that under the circumstances 
does not reflect discredit on the Military Service.


Sec. 113.4  Policy

    (a) It is DoD policy under 32 CFR part 112 that procedures be 
established for the processing of debt complaints against members of 
the Military Services and involuntary allotments from the pay of 
members of the Military Services.
    (b) An involuntary allotment shall not exceed the lesser of 25 
percent of a member's pay subject to involuntary allotment or the 
maximum percentage of pay subject to garnishment proceedings under the 
applicable State law.
    (c) The amount of an involuntary allotment under 32 CFR part 112 
and this part when combined with deductions as a result of garnishments 
or statutory allotments for spousal support and child support under 42 
U.S.C. 659, 661, 662, or 665, may not exceed the lesser of 25 percent 
of a member's pay subject to involuntary allotment or the maximum 
percentage of pay subject to garnishment proceedings under applicable 
State law. In any case in which the maximum percentage would be 
exceeded, garnishments and involuntary allotments for spousal and child 
support shall take precedence over involuntary allotments authorized 
under 32 CFR part 112 and this part. Involuntary allotments established 
under 32 CFR part 112 and this part shall be reduced or stopped as 
necessary to avoid exceeding the maximum percentage allowed.
    (d) The Truth in Lending Act (15 U.S.C. 1601 note, 1601-1614, 1631-
1646, 1661-1666j, and 1667-1667e) prescribes the general disclosure 
requirements that must be met by those offering or extending consumer 
credit and Federal Reserve Board Regulation Z (12 CFR 226) prescribes 
the specific disclosure requirements for both open-end and installment 
credit transactions. In place of Federal Government requirements, State 
regulations apply to credit transactions when the Federal Reserve Board 
has determined that the State regulations impose substantially similar 
requirements and provide adequate enforcement measures. Commanding 
officers, with the assistance of judge advocates, should check 
regulations of the Federal Reserve Board to determine whether Federal 
or State laws and regulations govern.


Sec. 113.5  Responsibilities.

    (a) The Under Secretary of Defense for Personnel and Readiness 
shall monitor compliance with this part.
    (b) The Under Secretary of Defense (Comptroller) shall ensure 
Defense Finance and Accounting Service (DFAS) implementation of this 
part.
    (c) The Heads of the DoD Components shall ensure compliance with 
this part.


Sec. 113.6  Procedures.

    (a) The following procedures apply to the processing of debt 
complaints against members of the Military Services.
    (1) It is incumbent on those submitting indebtedness complaints to 
show that they have met the disclosure requirements of the Truth in 
Lending Act (15 U.S.C. 1601 note, 1601-1614, 1631-1646, 1661-1666j, and 
1667-1667e) and Federal Reserve Board Regulation Z (12 CFR 226), and 
that they complied with the Standards of Fairness (appendix B to this 
part).
    (2) Creditors subject to Federal Reserve Board Regulation Z (12 CFR 
226), and assignees claiming thereunder, shall submit with their debt 
complaint an executed copy of the Certificate of Compliance (appendix A 
to this part), and a true copy of the general and specific disclosures 
provided the member of the Military Service as required by the Truth in 
Lending Act (15 U.S.C. 1601 note, 1601-1614, 1631-1646, 1661-1666j, and 
1667-1667e). Debt complaints that request assistance but do not meet 
these requirements will be returned without action to the 
claimant. [[Page 1724]] 
    (3) A creditor not subject to Federal Reserve Board Regulation Z 
(12 CFR 226), such as a public utility company, shall submit with the 
request a certificate that no interest, finance charge, or other fee is 
in excess of that permitted by the law of the State in which the 
obligation was incurred.
    (4) A foreign-owned company having debt complaints shall submit 
with its request a true copy of the terms of the debt (English 
translation) and shall certify that it has subscribed to the Standards 
of Fairness (appendix B to this part).
    (5) Debt complaints that meet the requirements of this part shall 
be processed by Department of Defense Components. ``Processed'' means 
that Heads of the Department of Defense Components, or designees, 
shall:
    (i) Review all available facts surrounding the transaction forming 
the basis of the complaint, including the member's legal rights and 
obligations, and any defenses or counterclaims the member may have.
    (ii) Advise the member concerned that:
    (A) Just financial obligations are expected to be paid in a proper 
and timely manner, and what the member should do to comply with that 
policy;
    (B) Financial and legal counseling services are available under DoD 
Directive 1344.7\3\ in resolving indebtedness; and

    \3\See footnote 1 to Sec. 113.3(b).
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    (C) That a failure to pay a just debt may result in the creditor 
obtaining a judgment from a court that could form the basis for 
collection of pay from the member pursuant to an involuntary allotment.
    (iii) If a member acknowledges a debt as a result of creditor 
contact with a DoD Component, advise the member that assistance and 
counseling may be available from the on-base military banking office, 
the credit union serving the military field of membership, or other 
available military community service organizations.
    (iv) Direct the appropriate commander to advise the claimant that:
    (A) Those aspects of DoD policy prescribed in 32 CFR part 112.4, 
are pertinent to the particular claim in question; and
    (B) The member concerned has been advised of his or her obligations 
on the claim.
    (v) The commander's response to the claimant shall not undertake to 
arbitrate any disputed debt, or admit or deny the validity of the 
claim. Under no circumstances shall the response indicate whether any 
action has been taken, or will be taken, against the member as a result 
of the complaint.
    (b) The following procedures apply to the processing of involuntary 
allotments from the pay of members of the Military Services.
    (1) Involuntary allotment application. (i) Regardless of the 
Service Affiliation of the member involved, with the exception of 
members of the Coast Guard an application to establish an involuntary 
allotment from the pay of a member of the Military Services shall be 
made by sending a completed DD Form 2653, ``Involuntary Allotment 
Application'' (appendix C to this part) to the appropriate address 
listed below. Applications sent to any other address shall be returned 
without action to the applicant.

(For Army, Navy, Air Force, or Marine Corps)

Defense Finance and Accounting Service, Cleveland Center, Code L, P.O. 
Box 998002, Cleveland, OH 44199-8002

(For Coast Guard only)

Coast Guard Pay and Personnel Center (LGL), 444 S.E. Quincy Street, 
Topeka, KS 66683-3591

    (ii) Each application must include a copy of the final judgment 
certified by the clerk of court and such other documents as may be 
required by Sec. 113.6(b)(1)(iv).
    (iii) A garnishment summons or order is insufficient to satisfy the 
final judgment requirement of Sec. 113.6(b)(1)(ii) and is not required 
to apply for an involuntary allotment under this part.
    (iv) Involuntary allotment applications must contain the following 
information, certifications, and acknowledgment:
    (A) The full name, social security number, and branch of Service of 
the military member against whose pay an involuntary allotment is 
sought. Although not required, inclusion of the member's current duty 
station and duty address on the application form will facilitate 
processing of the application.
    (B) The applicant's full name and address. If the applicant is not 
a natural person, the application must be signed by an individual with 
the authority to act on behalf of such entity. If the allotment is to 
be in favor of a person other than the original judgment holder, proof 
of the right to succeed to the interest of the original judgment holder 
is required and must be attached to the application.
    (C) The dollar amount of the judgment. Additionally, if the 
judgment awarded interest, the total dollar amount of the interest on 
the judgment accrued to the date of application.
    (D) A certification that the judgment has not been amended, 
superseded, set aside, or satisfied; or, if the judgment has been 
satisfied in part, the extent to which the judgment remains 
unsatisfied.
    (E) A certification that the judgment was issued while the member 
was not on active duty (in appropriate cases). If the judgment was 
issued while the member was on active duty, a certification that the 
member was present or represented by an attorney of the member's 
choosing in the proceedings, or if the member was not present or 
represented by an attorney of the member's choosing, that the judgment 
complies with the Soldiers' and Sailors' Civil Relief Act of 1940, as 
amended (50 U.S.C. appendix sections 501-591).
    (F) A certification that the member's pay could be garnished under 
applicable State law and section 5520a(k) of the United States Code, if 
the member were a civilian employee.
    (G) A certification that, to the knowledge of the applicant, the 
debt has not been discharged in bankruptcy, nor has the member filed 
for protection from creditors under the bankruptcy laws of the United 
States.
    (H) A certification that if the judgment is satisfied prior to the 
collection of the total amount through the involuntary allotment 
process, the applicant will provide prompt notice that the involuntary 
allotment must be discontinued.
    (I) A certification that if the member overpays the amount owed on 
the judgment, the applicant shall refund the amount of overpayment to 
the member within 30 days of discovery or notice of the overpayment, 
whichever, is earlier, and that if the applicant fails to repay the 
member, the applicant understands he or she may be denied the right to 
collect by involuntary allotment on other debt reduced to judgments.
    (J) Acknowledgment that as a condition of application, the 
applicant agrees that neither the United States, nor any disbursing 
official or Federal employee whose duties include processing 
involuntary allotment applications and payments, shall be liable for 
any payment or failure to make payment from moneys due or payable by 
the United States to any person pursuant to any application made in 
accordance herewith.
    (v) The original and three copies of the application and supporting 
documents must be submitted by the applicant to DFAS.
    (vi) A complete ``application package'' (the DD Form 2653, 
supporting documentation, and three copies of the 
[[Page 1725]] application and supporting documents), is required for 
processing of any request to establish an involuntary allotment 
pursuant to this part and 32 CFR part 112.
    (vii) Applications that do not conform to the requirements of this 
part shall not be processed. If an application is ineligible for 
processing, the application package shall be returned to the applicant 
with an explanation of the deficiency. In cases involving repeated 
false certifications by an applicant, the designated DFAS official may 
refuse to accept or process additional applications by that applicant 
for such period of time as the official deems appropriate to deter 
against such violations in the future.
    (2) Processing of involuntary allotment applications. (i) Promptly 
upon receipt of DD Form 2653 (Appendix C to this part), the designated 
DFAS official shall review the ``application package'' to ensure 
compliance with the requirements of this part. If the application 
package is complete, the DFAS official shall:
    (A) Complete Section I of DD Form 2654, ``Involuntary Allotment 
Notice and Processing'' (Appendix D to this part), by inserting the 
name, social security number, rank, and branch of service of the 
military member against whom an application for involuntary allotment 
is being processed. Additionally, the DFAS official shall provide the 
due date for receipt of a response at DFAS. The due date shall be 90 
days from the date DFAS mails the DD Form 2654 to the commander and 
member concerned as provided for in Sec. 113.6(b)(2)(i)(B).
    (B) Mail one copy of the application package to the member and two 
copies of the application package, along with DD Form 2654, to the 
commander of the military member or other official as designated by the 
Military Service concerned during times of war, national emergency, 
deployment, or other similar circumstances, who may act for the 
commander, provided the Military Service concerned has provided DFAS 
with the name or position of the official and the appropriate address 
(hereinafter, the meaning of the term ``commander'' includes such other 
official).
    (C) Within 60 days of mailing the copies of the application package 
and DD Form 2654, DFAS shall provide notice to the member and the 
member's commander that automatic processing of the involuntary 
allotment application shall occur if a response (including notice of an 
approved extension as authorized in Sec. 113.6(b)(2)(iii)(B) and (F), 
is not received by the due date specified in Section I of DD Form 2654. 
In the absence of a response, DFAS may automatically process the 
involuntary allotment application on the fifteenth calendar day after 
the date a response was due. When DFAS has received notice of an 
extension, automatice processing shall not begin until the fifteenth 
calendar day after the approved extension date.
    (D) Retain the original of the application package and DD Form 
2654.
    (ii) Upon receipt of an application, the commander shall determine 
if the member identified in Section I of DD Form 2654 is assigned or 
attached to the commander's unit and available to respond to the 
involuntary allotment application. If the member is not assigned or 
attached, or not available to respond (e.g., retired, in a prisoner of 
war status, or in a missing in action status), the commander will 
promptly complete Section II of DD Form 2654 and attach appropriate 
documentation supporting the determination. The commander will then 
mail the application package and DD Form 2654 to DFAS. Section II shall 
also be used by the commander to notify DFAS of extensions beyond the 
due date for a response contained in Section I of DD Form 2654. When 
such extensions are authorized, the commander will complete Section II, 
make a copy of Sections I and II, and promptly mail the copy to DFAS.
    (iii) Within 5 days of receipt of an application package and DD 
Form 2654 from the designated DFAS official, the commander shall notify 
the member of the receipt of the application, provide the member a copy 
of the entire application package, and counsel the member using and 
completing Section III of DD Form 2654 about the following:
    (A) That an application for the establishment of an involuntary 
allotment for the lesser of 25 percent of the member's pay subject to 
involuntary allotment or the maximum percentage of pay subject to 
garnishment proceedings under the applicable State law has been 
received.
    (B) That the member has 15 calendar days from the date of receipt 
of the commander's notice to complete Section IV of DD Form 2654. That 
for good cause shown, the commander may grant an extension of 
reasonable time (normally not exceeding 30 calendar days) to submit a 
response. That during times of deployment, war, national emergency, 
assignment outside the United States, hospitalization, or other similar 
situations that prevent the member from obtaining necessary evidence or 
from responding in a timely manner, extensions exceeding 30 calendar 
days may be granted. That if the member fails to respond within the 
time allowed, the commander will note the member's failure to respond 
in Section V of DD Form 2654 and send the form to DFAS for appropriate 
action.
    (C) That the member's response will either consent to the 
involuntary allotment or contest it.
    (D) That the member may contest the application for any one of the 
following reasons:
    (1) There has not been compliance with the procedural requirements 
of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (50 
U.S.C. appendix sections 501-591) during the judicial proceeding upon 
which the involuntary allotment application is sought.
    (2) ``Exigencies of military duty'' (as defined in 32 CFR part 
112.3(d)) caused the ``absence'' of the member from appearance in a 
judicial proceeding forming the basis for the judgment upon which the 
application is sought.
    (3) Information in the application is patently false or erroneous 
in material part.
    (4) The judgment has been fully satisfied, superseded, or set 
aside.
    (5) The judgment has been materially amended, or partially 
satisfied. When asserting this defense, the member shall include 
evidence of the amount of the judgment that has been satisfied.
    (6) There is a legal impediment to the establishment of the 
involuntary allotment (for example, the judgment debt has been 
discharged in bankruptcy, the judgment debtor has filed for protection 
from the creditors under the bankruptcy laws of the United States, the 
applicant is not the judgment holder nor a proper successor in interest 
to that holder, or the applicant has been enjoined by a Federal or 
state court from enforcing the judgment debt).
    (7) Or other appropriate reasons that must be clearly specified and 
explained by the member.
    (E) That, if the member contests the involuntary allotment, the 
member shall provide evidence (documentary or otherwise) in support 
thereof. Furthermore, that any evidence submitted by the member may be 
disclosed to the applicant for the involuntary allotment.
    (F) That the member may consult with a legal assistance attorney, 
if reasonably available, or a civilian attorney at no expense to the 
government. That if a legal assistance attorney is available, the 
member should immediately arrange for an appointment. That the member 
may request a reasonable delay from the commander to obtain legal 
assistance (in cases where an approved delay will cause DFAS to receive 
the member's [[Page 1726]] response after the due date identified in 
Section I of DD Form 2654, the commander must immediately notify the 
designated DFAS official of the delay, the date for an expected 
response, and the reason for the delay by completing Section II of DD 
Form 2654 and forwarding a copy of Sections I and II to DFAS). 
Additionally, that requests for extensions of time based on the need 
for legal assistance shall be denied to members who fail to exercise 
due diligence in seeking such assistance.
    (G) That if the member contests the involuntary allotment on the 
grounds that exigencies of military duty caused the absence of the 
member from the judicial proceeding at which the judgment was rendered, 
then the member's commander shall review and make the final 
determination on this contention, and notify the designated DFAS 
official of the commander's decision by completing Section V of DD Form 
2654 and forwarding the form to DFAS.
    (1) In determining whether exigencies of military duty caused the 
absence of the member, the commander at the level designated by the 
Service concerned shall consider the definition of ``exigencies of 
military duty'' (as defined in 32 CFR part 112.3(d)).
    (2) Additionally, consideration shall be given to whether the 
commander at the time determined the military duties in question to be 
of such paramount importance that they prevented making the member 
available to attend the judicial proceedings, or rendered the member 
unable to timely respond to process, motions, pleadings, or orders of 
the court.
    (H) That if the member contests the involuntary allotment on any 
basis other than exigencies of military duty, the application package 
and DD Form 2654 shall be returned to the commander who shall forward 
it to the designated DFAS official for appropriate action.
    (I) That if the member fails to respond to the commander within the 
time allowed under Sec. 113.6(b)(2)(iii)(B), the commander shall notify 
the designated DFAS official of the member's failure to respond by 
completing Section V of DD Form 2654, and forwarding the form to DFAS.
    (iv) After counseling the member in accordance with 
Sec. 113.6(b)(2)(iii)(A)-(I), the commander shall:
    (A) Date and sign Section III of DD Form 2654.
    (B) Obtain the member's acknowledgment of counseling by having the 
member sign the appropriate space on Section III of DD Form 2654.
    (C) Determine if the member consents to the involuntary allotment 
or needs the time authorized under this part to review the application 
package and take appropriate action. If the member consents to the 
involuntary allotment, the commander shall direct the member to 
appropriately complete Section IV of DD Form 2654. The commander must 
then complete the appropriate item in Section V and promptly forward 
the completed DD Form 2654 to the designated DFAS official.
    (D) Complete the appropriate items in Section V of DD Form 2654 
when the member fails to respond within the time authorized for a 
response, or asserts that exigencies of military duty caused the 
absence of the member from an appearance in the judicial proceeding 
upon which the Involuntary Allotment Application is sought.
    (1) In determining whether exigencies of military duty caused the 
absence of the member, the commander, at the level designated by the 
Service concerned, shall consider the definition of ``exigencies of 
military duty'' (as defined in 32 CFR part 112.3(d)), the evidence 
provided by the member, any other reasonably available evidence (e.g., 
a copy of the member's personnel record), and whether the commander at 
the time determined the military duties in question to be of such 
paramount importance that they prevented making the member available to 
attend the judicial proceedings, or rendered the member unable to 
timely respond to process, motions, pleadings, or orders of the court.
    (2) The evidentiary standard for a commander to determine whether 
existences of military duty caused the absence of the member from an 
appearance in the judicial proceeding upon which the Involuntary 
Allotment Application is sought is a ``preponderance of the evidence'' 
(as defined in Sec. 113.3(d) of this part).
    (3) If the commander has made a determination on exigencies of 
military duty, the commander must insert in Section V of DD Form 2654, 
the title and address of the appeal authority.
    (E) Promptly following the date the member's response is due to the 
commander as determined by Sec. 113.6(b)(2)(iii)(B), ensure that the DD 
Form 2654 is appropriately completed and mail the form, along with any 
response received from the member, to DFAS.
    (F) Provide the member a copy of the completed DD Form 2654 within 
5 days of mailing to the designated DFAS official.
    (v) Upon receipt of DD Form 2654 and any additional evidence 
submitted by the member, the designated DFAS official shall conduct a 
review of the entire application package, DD Form 2654, and any 
evidence submitted by the member, to determine whether the application 
for an involuntary allotment should be approved and established.
    (A) In those cases where the member's commander has completed 
Section V of DD Form 2654, and determined that exigencies of military 
duty caused the absence of the member from an appearance in a judicial 
proceeding upon which the involuntary allotment application is sought, 
the designated DFAS official shall deny the involuntary allotment 
application and provide the applicant written notice of the denial and 
the reason therefor. The designated DFAS official shall also advise the 
applicant that:
    (1) The responsibility for determining whether exigencies of 
military duty existed belonged to the member's commander and the 
Military Department concerned.
    (2) The commander's decision may be appealed within 60 days of the 
date DFAS mailed the notice of the decision to the applicant.
    (3) An Appeal must be submitted to the appeal authority at the 
address provided by DFAS (as found in Section V of the DD Form 2654) in 
their written notice of denial, and that an appeal submitted to an 
appeal authority and address different from the one provided by DFAS 
may be returned without action.
    (4) An appeal must be submitted in writing and contain sufficient 
evidence to overcome the presumption that the commander's exigency 
determination was correct.
    (5) The appellate authority shall decide an appeal within 30 days 
of its receipt and promptly notify the applicant in writing of the 
decision. The 30 day decision period may be extended during times of 
deployment, war, national emergency, or other similar situations.
    (6) If an appeal is successful, the applicant must submit a written 
request, along with a copy of the appellate authority's decision, to 
DFAS within 15 days of receipt of the appellate authority's decision.
    (B) Upon receiving written notice that an applicant has 
successfully appealed a commander's determination on exigencies of 
military duty that resulted in denial of an involuntary allotment 
application, DFAS shall review the application in accordance with 
Sec. 113.6(b)(2)(v)(C), and determine whether the involuntary allotment 
should be approved and initiated.
    (C) In all cases, other than as described in 
Sec. 113.6(b)(2)(v)(A), the designated DFAS official shall deny an 
[[Page 1727]] involuntary allotment application, and give written 
notice to the applicant of the reason(s) for denial, if the designated 
DFAS official determines that:
    (1) There has not been compliance with the procedural requirements 
of the Soldier's and Sailor's Civil Relief Act of 1940, as amended (50 
U.S.C. appendix sections 501-591) during the judicial proceeding upon 
which the involuntary allotment application is sought.
    (2) Information in the application is patently false or erroneous 
in material part.
    (3) The judgment has been fully satisfied, superseded, or set 
aside.
    (4) The judgment has been materially amended, or partially 
satisfied. In such a case, the request for involuntary allotment may be 
approved only to satisfy that portion of the judgment that remains in 
effect and unsatisfied; the remainder of the request shall be denied.
    (5) There is a legal impediment to the establishment of the 
involuntary allotment (for example, the judgment debt has been 
discharged in bankruptcy, the judgment debtor has filed for protection 
from the creditors under the bankruptcy laws of the United States, the 
applicant is not the judgment creditor nor a proper successor in 
interest to that creditor, or the applicant has been enjoined by a 
Federal or State court from enforcing the judgment debt).
    (6) The member's pay is already subject to one or more involuntary 
allotments or garnishments that equal the lesser of 25 percent of the 
member's pay subject to involuntary allotment or the maximum percentage 
of pay subject to garnishment proceedings under the applicable State 
law.
    (7) The applicant has abused the processing privilege (e.g., an 
applicant, having been notified of the requirements of this part, 
repeatedly refuses or fails to comply therewith).
    (8) Or other appropriate reasons that must be clearly explained to 
the applicant.
    (D) In all cases other than as described in Sec. 113.6(b)(2)(v) (A) 
and (C), the designated DFAS official shall approve the involuntary 
allotment application and establish an involuntary allotment against 
the pay subject to involuntary allotment of the member.
    (vi) The designated DFAS official shall, at any time after 
establishing an involuntary allotment, cancel or suspend such allotment 
and notify the applicant of that cancellation if the member concerned, 
or someone acting on his or her behalf, submits legally sufficient 
proof, by affidavit or otherwise, that the allotment should not 
continue because of the existence of the factors enumerated in 
Sec. 113.6(b)(2)(v)(A) and (C)(1)-(8).
    (3) Payments
    (i) Payment of an approved involuntary allotment under 32 CFR part 
112 and this part shall commence within 30 days after the designated 
DFAS official has approved the involuntary allotment.
    (ii) Payments under this part shall not be required more frequently 
than once each month, and the designated official shall not be required 
to vary normal pay and disbursement cycles.
    (iii) If the designated DFAS official receives several applications 
on the same member of a Military Service, payments shall be satisfied 
on a first-come, first-served basis.
    (iv) Payments shall continue until the judgment is satisfied or 
until canceled or suspended.
    (A) DFAS shall collect the total judgment, including interest when 
awarded by the judgment. Within 30 days following collection of the 
amount of the judgment, including interest as annotated by the 
applicant in Section I of DD Form 2654, the applicant may submit a 
final statement of interest that accrued during the pay-off period. 
This final statement of interest request must be accompanied by a 
statement of account showing how the applicant computed the interest 
amount. DFAS will collect this post-application interest provided it is 
an amount owed pursuant to the judgment. DFAS shall not accept any 
further interest requests.
    (B) Interest or other costs associated with the debt forming the 
basis for the judgment, but not included as an amount awarded by the 
judgment, shall not be paid to applicants for involuntary allotments.
    (v) If the member is found not to be entitled to money due from or 
payable by the Military Services, the designated official shall return 
the application and advise the applicant that no money is due from or 
payable by the Military Service to the member. When it appears that pay 
subject to an involuntary allotment is exhausted temporarily or 
otherwise unavailable, the applicant shall be told why and for how long 
that money is unavailable, if known. Involuntary allotments shall be 
canceled on or before the date a member retires, is discharged, or is 
released from active duty. The designated DFAS official shall notify 
the applicant of the reason for cancellation.
    (vi) Upon receiving notice from an applicant that a judgment upon 
which an involuntary allotment is based has been satisfied, vacated, 
modified, or set aside, the designated DFAS official shall promptly 
adjust or discontinue the involuntary allotment.
    (vii) The Under Secretary of Defense (Comptroller) may, in DoD 
7000.14-R\4\ Volume 7, Part A, designate the priority to be given to 
involuntary allotments pursuant to 32 CFR part 112 and this part, among 
the deductions and collections taken from a member's pay, except that 
they may not give precedence over deductions required to arrive at a 
member's disposable pay for garnishments or involuntary allotments 
authorized by statute for alimony and child support payments. In the 
absence of a contrary designation by the Comptroller, all other lawful 
deductions (except voluntary allotments by the member) and collections 
shall take precedence over these involuntary allotments.

    \4\See footnote 1 to Sec. 113.3(b).
---------------------------------------------------------------------------

Appendix A to Part 113--Certificate of Compliance

    I certify that the (Name of Creditor) upon extending credit

to---------------------------------------------------------------------

on---------------------------------------------------------------------
(Date)

complied with the full disclosure requirements of the Truth-in-
Lending Act and Regulation Z, and the Fair Debt Collection Practices 
Act (or the laws and regulations of State of ____________________), 
and that the attached statement is a true copy of the general and 
specific disclosures provided the obligor as required by law.
    I further certify that the Standards of Fairness set forth in 
DoD Directive 1344.9\1\ have been applied to the consumer credit 
transaction to which this form refers. (If the unpaid balance has 
been adjusted as a consequence, the specific adjustments in the 
finance charge and the annual percentage rate should be set forth 
below.)

    \1\Copies may be obtained, at cost, from the National Technical 
Information Service, 5285 Port Royal Road, Springfield, VA 22161.
---------------------------------------------------------------------------

----------------------------------------------------------------------
(Adjustments)

----------------------------------------------------------------------

----------------------------------------------------------------------

----------------------------------------------------------------------
(Date of Certification)

----------------------------------------------------------------------
(Signature of Creditor or Authorized Representative)

----------------------------------------------------------------------
(Street)

----------------------------------------------------------------------
(City, State and Zip Code)

Appendix B to Part 113--Standards of Fairness

    1. No finance charge contracted for, made, or received under any 
contract shall be in excess of the charge that could be made for 
such contract under the law of the place in which the contract is 
signed in the United States by the military member. [[Page 1728]] 
    a. In the event a contract is signed with a U.S. company in a 
foreign country, the lowest interest rate of the State or States in 
which the company is chartered or does business shall apply.
    b. However, interest rates and service charges applicable to 
overseas military banking facilities shall be as established by the 
Department of Defense.
    2. No contract or loan agreement shall provide for an attorney's 
fee in the event of default unless suit is filed, in which event the 
fee provided in the contract shall not exceed 20 percent of the 
obligation found due. No attorney fees shall be authorized if the 
attorney is a salaried employee of the holder.
    3. In loan transactions, defenses that the debtor may have 
against the original lender or its agent shall be good against any 
subsequent holder of the obligation. In credit transactions, 
defenses against the seller or its agent shall be good against any 
subsequent holder of the obligation, provided that the holder had 
actual knowledge of the defense or under conditions where reasonable 
inquiry would have apprised the holder of this fact.
    4. The military member shall have the right to remove any 
security for the obligation beyond State or national boundaries if 
the military member or family moves beyond such boundaries under 
military orders and notifies the creditor, in advance of the 
removal, of the new address where the security will be located. 
Removal of the security shall not accelerate payment of the 
obligation.
    5. No late charge shall be made in excess of 5 percent of the 
late payment, or $5.00, whichever is the lesser amount, or as 
provided by law or applicable regulatory agency determination. Only 
one late charge may be made for any tardy installment. Late charges 
shall not be levied where an allotment has been timely filed, but 
payment of the allotment has been delayed. Late charges by overseas 
banking facilities are a matter of contract with the Department of 
Defense.
    6. The obligation may be paid in full at any time or through 
accelerated payments of any amount. There shall be no penalty for 
prepayment. In the event of prepayment, that portion of the finance 
charges that has inured to the benefit of the seller or creditor 
shall be prorated on the basis of the charges that would have been 
ratably payable had finance charges been calculated and payable as 
equal periodic payments over the terms of the contract, and only the 
prorated amount to the date of prepayment shall be due. As an 
alternative, the ``Rule of 78'' may be applied.
    7. If a charge is made for loan insurance protection, it must be 
evidenced by delivery of a policy or certificate of insurance to the 
military member within 30 days.
    8. If the loan or contract agreement provides for payments in 
installation, each payment, other than the down payment, shall be in 
equal or substantially equal amounts, and installments shall be 
successive and of equal or substantially equal duration.
    9. If the security for the debt is repossessed and sold in order 
to satisfy or reduce the debt, the repossession and resale shall be 
governed by the laws of the State in which the security is 
requested.
    10. A contract for personal goods and services may be terminated 
at any time before delivery of the goods or services without charge 
to the purchaser. However, if goods made to the special order of the 
purchaser result in preproduction costs, or require preparation for 
delivery, such additional costs shall be listed in the order form or 
contract.
    a. No termination charge shall be made in excess of this amount. 
Contracts for delivery at future intervals may be terminated as to 
the undelivered portion.
    b. The purchaser shall be chargeable only for that proportion of 
the total cost that the goods or services delivered bear to the 
total goods called for by the contract. (This is in addition to the 
right to rescind certain credit transactions involving a security 
interest in real estate provided by the Truth in Lending Act (15 
U.S.C. 1601 note, 1601-1614, 1631-1646, 1661-1665a, 1666-1666j, and 
1667-1667e) and Federal Reserve Board Regulation Z (12 CFR 226)).

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[FR Doc. 95-224 Filed 1-4-95; 8:45 am]
BILLING CODE 5000-04-C