ABA Banking Journal - February 2008 - (Page 57)

Compliance Clinic Military credit regs demand close attention Think the new Department of Defense regulations don’t apply to your bank? A closer look might surprise you U.S. military service member finds himself or herself in a financial crisis. There’s too much debt, or a family emergency arises. So the service member turns to short-term solutions, such as payday loans or titled vehicle loans, to get through the current situation. But what happens next is often the beginning of a recurring cycle of very costly debt that compounds on itself and becomes harder and harder to dig out of. The stress caused by the quagmire of debt has become a problem for many military families, and thus for the military itself. The military has implemented programs to help. These range from financial education to making predatory lenders off-limits to military personnel. They include military aid societies that provide financial assistance to affected individuals. Beyond those measures, part of the response to this problem is new legislation and regulation. The John Warner National Defense Authorization Act for fiscal 2007 was passed on Oct. 17, 2006, and implementing regulations were issued by the Department of Defense (DOD) in August 2007. The DOD Limitations on Terms of Consumer Credit Extended to Service Members and Dependents Regulation became effective on Oct. 1, 2007. The act and implementing regulations require additional disclosures for and place certain limitations on loans within the defined categories of payday loans; titled vehicle loans; and tax refund anticipation loans to service members and their dependents. Any creditor that makes any of these to a regular or reserve A member of the armed forces (Army, Navy, Air Force, Marines, or Coast Guard) on active duty, or their dependents, must provide additional loan disclosures and adhere to certain limitations on rate, prepayment penalties, and related factors. A bank should not choose to completely ignore the DOD regulation. Civil money penalties can be assessed by regulators. In addition, the law provides that a contract containing any prohibited term is voided. By Nancy D. Castiglione, contributing editor and principle, D-C Compliance Services, Highlands Ranch, Colo., nancycastiglione@comcast.net Risk assessment process Every bank should take the time to determine what, if any, risk it may have in connection with the new requirements. The first step in the risk assessment process is to identify any products and services that could be covered by the regulations. Some will be apparent on their face, but others won’t be so obvious. They could include sub-categories and pricing variations of broader product categories. Many banks have initially assumed that they are not subject to the DOD regulation, but upon closer examination have found that indeed they are covered in some way. One bank, for example, discovered that a single branch out of its whole network, one located in a rural area, makes a handful of vehicle title loans each year, while the rest of ABA BANKING JOURNAL/FEBRUARY 2008 57 http://www.dccompliance.com

Table of Contents Feed for the Digital Edition of ABA Banking Journal - February 2008

ABA Banking Journal - February 2008 Contents On ABABJ.COM: Have You Visited Our Brand-New Website? Editor's Column "That's Edutainment" Snapshot: Tier 1 Ratios Stable so Far 100th Anniversary: Then and Now ABA Resources ABA Chairman's Position Don't Despair Pass the Aspirin Cover Story: Socially Responsible Banking Profitably - Incoming America's Community Bankers Council Chairwoman, Dorothy Bridges Demonstrates the Way A True "Rags-to-Banker" Story Retail Banking: On the Money Hunt Community Bank Management: The Ugly Truth About Board Relations Does Core Really Matter? Security 2.0: Not Just a New Kettle of Phish A Personal Case of Mal-Serendipity DOD Credit Regs Demand Attention Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - February 2008

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