WASHINGTON — The Defense Department rejected calls from bankers to further restrict a new lending cap on certain products to military personnel, but left open in a final rule expected to be published today that it could revisit the issue.
The final rule, which will take effect Oct. 1, is
Banking industry representatives said they were disappointed there was no blanket exemption, but they called the final product acceptable.
"Banks did not get the carve-out, and frankly we think that would have been the best way to go, but that's more long-term," said Wayne Abernathy, executive director of financial institutions policy and regulatory affairs for the American Bankers Association. "We think this is workable."
In the 62-page rule, expected to be published in the Federal Register today, the Defense Department said a blanket exemption was unnecessary.
"Given the limited types of credit products covered by the rule, an exemption for depository institutions is not needed to ensure access to beneficial credit by service members and their dependents," the rule said. "Federally supervised financial institutions that commented appear to be concerned about future iterations of the regulation and the potential for the regulation. … If the department considers it necessary to reconsider the products as covered consumer credit, the issuance of such exemptions would also be reconsidered."
Bankers were reassured that the final rule allowed for the possibility of exempting banks later.
"We appreciate that they left the door open to exempt depository institutions, particularly if the definition of consumer credit changes," said Karen Thomas, executive vice president for government relations for the Independent Community Bankers of America.
The Talent amendment, included in a military spending bill passed last year, instituted a 36% annual percentage rate cap — including fees — on all loans to military personnel and their dependents. It created specific exemptions for mortgages and auto purchases secured by a title, but left other types of lending up in the air and allowed the Defense Department to further define creditor and consumer credit.
In June comment letters, banks argued they do not offer the types of products targeted by the amendment, and said they were concerned that the rule's definitions might conflict with the Truth in Lending Act.
But the final rule included some adjustments to the draft's definitions. For example, credit card companies — which had feared the language was too broad — convinced the Defense Department to tweak the definition of consumer credit to specify that the cap applied only to closed-end credit.
The final rule also exempted small-dollar loan products that borrowers with poor credit can use in lieu of payday loans. In the rule the Defense Department reserved the right to review its implementation and said it could issue additional restrictions in the future if warranted.
Bankers had feared attention from the Defense Department instead of the banking and thrift regulators. But Mr. Abernathy said many banks will avoid offering the products targeted by the final rule so that they would not subject themselves to additional oversight.
"They have defined those products in such a way that I think banks will say they just won't offer those products, period — so there won't be an enforcement issue," he said.
