[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
[[Page 11844]]
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