[Federal Register Volume 85, Number 40 (Friday, February 28, 2020)]
[Rules and Regulations]
[Pages 11842-11844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04041]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 232

[Docket ID: DOD-2013-OS-0133]
RIN 0790-ZA14


Military Lending Act Limitations on Terms of Consumer Credit 
Extended to Service Members and Dependents

AGENCY: Under Secretary of Defense for Personnel and Readiness, 
Department of Defense.

ACTION: Interpretive rule.

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SUMMARY: The Department of Defense (Department) is amending its 
interpretive rule for the Military Lending Act (the MLA). The MLA, as 
implemented by the Department, limits the military annual percentage 
rate (MAPR) that a creditor may charge to a maximum of 36 percent, 
requires certain disclosures, and provides other substantive consumer 
protections on ``consumer credit'' extended to Service members and 
their families. On July 22, 2015, the Department amended its regulation 
primarily for the purpose of extending the protections of the MLA to a 
broader range of closed-end and open-end credit products (the July 2015 
Final Rule). On August 26, 2016, the Department issued the first set of 
interpretations of that regulation in the form of questions and 
answers. On December 14, 2017, the Department issued a second set of 
interpretations of that regulation in the form of amended questions and 
answers. The Department is now withdrawing the amended question and 
answer number 2 (Q&A #2), published in the December 14, 2017 
Interpretive Rule, which discussed when credit is extended for the 
purpose of purchasing a motor vehicle or personal property and the 
creditor simultaneously extends credit in an amount greater than the 
purchase price of the motor vehicle or personal property. In 
withdrawing this amended question and answer, the Department is 
reverting back to the original Q&A #2 published in the August 26, 2016 
Interpretive Rule. This will allow the Department to conduct additional 
analysis on this matter. The Department is also adding a new question 
and answer to address questions about the use of Individual Taxpayer 
Identification Numbers to identify covered borrowers in the 
Department's database.

DATES: Effective Date: This interpretive rule is effective February 28, 
2020.

FOR FURTHER INFORMATION CONTACT: Andrew Cohen, 703-692-5286.

SUPPLEMENTARY INFORMATION: 

I. Background and Purpose

    In July 2015, the Department of Defense (Department) issued a final 
rule \1\ (July 2015 Final Rule) amending its regulation implementing 
the Military Lending Act (MLA) \2\ primarily for the purpose of 
extending the protections of the MLA to a broader range of closed-end 
and open-end credit products, rather than the limited credit products 
that had been defined as ``consumer credit.'' \3\ Among other 
amendments, the July 2015 Final Rule modified provisions relating to 
the optional mechanism a creditor may use when assessing whether a 
consumer is a ``covered borrower,'' modified the

[[Page 11843]]

disclosures that a creditor must provide to a covered borrower, and 
implemented the enforcement provisions of the MLA.
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    \1\ 80 FR 43560 (July 22, 2015).
    \2\ 10 U.S.C. 987.
    \3\ 32 CFR 232.3(b) as implemented in a final rule published at 
72 FR 50580 (Aug. 31, 2007).
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    Subsequently, the Department received requests to clarify its 
interpretation of points raised in the July 2015 Final Rule. In an 
effort to assist industry in complying with the July 2015 Final Rule, 
the Department elected to answer these requests through an interpretive 
rule in the form of questions and answers. The Department issued the 
first set of such interpretations on August 26, 2016 (August 26, 2016 
Interpretive Rule).\4\ The Department issued a second set of such 
interpretations on December 14, 2017 (December 14, 2017 Interpretive 
Rule).\5\
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    \4\ 81 FR 58840 (August 26, 2016).
    \5\ 82 FR 58739 (December 14, 2017).
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    The present interpretive rule amends and adds to those questions 
and answers. Subsequent to the publication of the December 14, 2017 
Interpretive Rule, the Department received several formal requests for 
the Department to withdraw the amended Q&A #2 from the December 14, 
2017 Interpretive Rule.\6\ One point raised in the requests for 
withdrawal was a concern that creditors' would be unable to technically 
comply with the MLA if the purchase included products not expressly 
related to the purchase of the vehicle as described in the amended Q&A 
#2 from the December 14, 2017 Interpretive Rule, because Sec.  232.8(f) 
of the regulation would prohibit creditors from taking a security 
interest in the vehicle in those circumstances and creditors may not 
extend credit if they could not take a security interest in the vehicle 
being purchased. The Department finds merit in this concern and agrees 
additional analysis is warranted. In withdrawing the amended Q&A #2, 
published on December 14, 2017, because of unforeseen technical issues 
between the amended Q&A #2 and 32 CFR 232.8(f), the Department, absent 
of additional analysis, takes no position on any of the arguments or 
assertions advanced as a basis for withdrawing the amended Q&A #2 from 
the December 14, 2017 Interpretive Rule. In addition, the Department is 
adding Q&A #21 to its interpretations in response to inquiries 
regarding the use of an Individual Taxpayer Identification Number when 
an individual does not possess a Social Security Number to conclusively 
determine if an individual is covered borrower in the Department's MLA 
database for the purpose of safe harbor.
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    \6\ The Department received formal requests from the National 
Automobile Dealers Association/American Financial Services 
Association (January 18, 2018), American Bankers Association 
(January 19, 2018), Consumer Bankers Association (January 30, 2018), 
National Association of Federally-Insured Credit Unions/Defense 
Credit Union Council (January 31, 2018), National Independent 
Automobile Dealers Association (February 2, 2018), and the 
Guaranteed Asset Protection Alliance (February 12, 2018).
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    This amended interpretive rule does not change the regulation 
implementing the MLA, but merely states the Department's preexisting 
interpretations of an existing regulation. Therefore, under 5 U.S.C. 
553(b)(A), this rulemaking is exempt from the notice and comment 
requirements of the Administrative Procedure Act, and, pursuant to 5 
U.S.C. 553(d)(2), this rule is effective immediately upon publication 
in the Federal Register.

II. Interpretations of the Department

    The following questions and answers represent official 
interpretations of the Department on issues related to 32 CFR part 232. 
For ease of reference, the following terms are used throughout this 
document: MLA refers to the Military Lending Act (codified at 10 U.S.C. 
987); MAPR refers to the military annual percentage rate, as defined in 
32 CFR 232.3(p).
    In order to provide further guidance to industry and the public on 
the Department's view of its existing regulation, the Department is 
amending its guidance on one question and answer, and by adding one new 
question and answer.
    The numbering of this document follows the numbering of the 
questions and answers provided in the August 26, 2016 and December 14, 
2017 Interpretive Rules. The text of the amended and new questions and 
answers follows:
    2. Does credit that a creditor extends for the purpose of 
purchasing personal property, which secures the credit, fall within the 
exception to ``consumer credit'' under 32 CFR 232.3(f)(2)(iii) where 
the creditor simultaneously extends credit in an amount greater than 
the purchase price?
    Answer: No. Section 232.3(f)(1) defines ``consumer credit'' as 
credit extended to a covered borrower primarily for personal, family, 
or household purposes that is subject to a finance charge or payable by 
written agreement in more than four installments. Section 232.3(f)(2) 
provides a list of exceptions to subparagraph (f)(1), including an 
exception for any credit transaction that is expressly intended to 
finance the purchase of personal property when the credit is secured by 
the property being purchased. A hybrid purchase money and cash advance 
loan is not expressly intended to finance the purchase of personal 
property, because the loan provides additional financing that is 
unrelated to the purchase. To qualify for the purchase money exception 
from the definition of consumer credit, a loan must finance only the 
acquisition of personal property. Any credit transaction that provides 
purchase money secured financing of personal property along with 
additional ``cash-out'' financing is not eligible for the exception 
under Sec.  232.3(f)(2)(iii) and must comply with the provisions set 
forth in the MLA regulation.
    21. Does a creditor qualify for the safe harbor set forth in 32 CFR 
232.5(b)(2)(i)(A) if the creditor uses an Individual Taxpayer 
Identification Number (ITIN) to search the Department's database to 
conclusively determine whether credit is offered or extended to a 
covered borrower, and thus may be subject to 10 U.S.C. 987 and the 
requirements of 32 CFR 232.5(b)?
    Answer: Yes. The Department recognizes that while all members of 
the Armed Forces will have a Social Security Number (SSN), a limited 
population of dependents, who meet the definition of a covered borrower 
in 32 CFR 232.3(g), may not qualify for a SSN due to their citizenship 
status. An ITIN is a tax processing number issued by the Federal 
government in lieu of a SSN. ITINs are only available for certain 
nonresident and resident aliens, their spouses, and dependents who 
cannot obtain a SSN and can be used in searches of the Department's 
database.\7\ Since all covered borrowers will have a SSN or ITIN, the 
Defense Manpower Data Center (DMDC) MLA database contains ITINs for 
covered borrowers who are not eligible to obtain an SSN. Therefore, for 
purposes of 32 CFR 232.5(b)(2)(i)(A), an ITIN is a ``Social Security 
number.''
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    \7\ Internal Revenue Service, ``Taxpayer Identification Numbers 
(TIN)'' (last updated May 2, 2018).
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III. Regulatory Impact

Executive Order 12866, ``Regulatory Planning and Review'' and Executive 
Order 13563, ``Improving Regulation and Regulatory Review''

    Executive Orders 13563 and 12866 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563

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emphasizes the importance of quantifying both costs and benefits, 
reducing costs, harmonizing rules, and promoting flexibility. It has 
been determined that this rule is a significant regulatory action under 
Executive Order 12866, and it has been reviewed by the Office of 
Management and Budget. It is not a major rule under 5 U.S.C. 804.

Executive Order 13771, ``Reducing Regulation and Controlling Regulatory 
Costs''

    This rule is exempt from the requirements of Executive Order 13771 
because it results in no more than de minimis costs.

Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)

    This rule does not impose reporting and record keeping requirements 
under the Paperwork Reduction Act of 1995.

    Dated: February 24, 2020.
Aaron T. Siegel,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 2020-04041 Filed 2-27-20; 8:45 am]
 BILLING CODE 5001-06-P