Limitations on Terms of Consumer Credit Extended to Service Members and Dependents, 18157-18170 [07-1780]

Agencies

• Office of the Secretary
• DEPARTMENT OF DEFENSE

[Federal Register Volume 72, Number 69 (Wednesday, April 11, 2007)]
[Proposed Rules]
[Pages 18157-18170]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-1780]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 232

[DOD-2006-OS-0216]
RIN 0790-AI20


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

AGENCY: Department of Defense (DoD).

ACTION: Notice of proposed rulemaking and request for comment.

-----------------------------------------------------------------------

SUMMARY: The Department of Defense (the Department or DoD) proposes to 
amend our regulations by adding a new part to implement the consumer 
protections covered by Public Law 109-364, the John Warner National 
Defense Authorization Act for Fiscal Year 2007, section 670, 
``Limitations on Terms of Consumer Credit Extended to Service Members 
and Dependents'' (October 17, 2006). Section 670 of Public Law 109-364 
created 10 U.S.C. 987 and requires the Secretary of Defense to 
prescribe regulations to carry out the new section. The proposed 
regulation is intended to regulate the terms of consumer credit 
extended by creditors to active duty service members and their 
dependents.

DATES: Comments must be received no later than June 11, 2007.

ADDRESSES: You may submit comments, identified by docket number and or 
Regulatory Information Number (RIN) and title, by any of the following 
methods:

--Federal eRulemaking Portal: https://www.regulations.gov. Follow the 
instructions for submitting comments.
--Mail: Federal Docket Management System Office, 1160 Defense Pentagon, 
Washington, DC 20301-1160.

    Instructions: All submissions received must include the agency name 
and docket number or RIN for this Federal Register document. The 
general policy for comments and other submissions from members of the 
public is to make these submissions available for public viewing on the 
Internet at https://regulations.gov as they are received without change, 
including any personal identifiers or contact information.

FOR FURTHER INFORMATION CONTACT: Mr. George Schaefer, (703) 588-0876.

SUPPLEMENTARY INFORMATION:

I. Background

    Today's joint force combat operations require highly trained, 
experienced and motivated troops. We are fortunate that the All 
Volunteer Force of today is comprised of individuals who fit the 
stringent requirements needed for success on the battlefield. The 
military has seen a lot of changes since it became an All Volunteer 
Force in 1973. The technological advances over the ensuing 34 years 
have made remarkable transformations to the capabilities of the Armed 
Forces.
    These advances would not have been as easily attained if it were 
not for the All Volunteer Force. The members of this force have higher 
levels of aptitude, stay in the military longer, and as a consequence, 
perform better than their conscript predecessors. During the Vietnam 
era draft, 90 percent of

[[Page 18158]]

conscripts quit after their initial two-year hitch, whereas retention 
of volunteers is five-times better today--about half remain after their 
initial (four-year) military service obligation. Said another way, two 
thirds of the military was serving in its first two years of service 
prior to 1973, where as today, the number is about one-fourth.
    Today's Service members are still younger than the population as a 
whole, with 46 percent 25 years old or less. Thirty eight percent of 
these young Service members 25 years old or less are married and 21 
percent of them have children. This is compared with approximately 13 
percent of their contemporaries in the U.S. population 18 through 24 
who are married (2000 Census). The majority of recruits come to the 
military from High School, with little financial literacy education.
    The initial indoctrination provided to Service members is critical, 
providing basic requirements for their professional responsibilities 
and to successfully adjust to military life. Part of this training is 
in personal finance which is seen as an integral part of their 
responsibilities. The Department continues to provide them messages to 
save, invest and manage their money wisely throughout their career.
    Service members and their families are experiencing the sixth year 
of the Global War on Terror. The Department views the support provided 
to military families as essential to sustaining force readiness and 
military capability. From this perspective, it is not sufficient for 
the Department to train Service members on how best to use their 
financial resources--financial protections are an important part of 
fulfilling the Department's compact with Service members and their 
families.

Social Compact

    The Department of Defense (DoD) believes that assisting Service 
members with their family needs is essential to maintaining a stable, 
motivated All Volunteer Force. As part of the President's February 2001 
call to improve the quality of life for Service members and their 
families, the Department of Defense developed a social compact 
reflecting the Department's commitment to caring for their needs as a 
result of their commitment to serving the Nation. The social compact 
involved a bottom-up review of the quality-of-life support provided by 
the Department, which articulated the linkage between quality-of-life 
programs as a human capital management tool and the strategic goal of 
the Department--military readiness.
    The social compact is manifested in the programs the Department of 
Defense provides to support the quality of life of Service members and 
their families. This social compact includes personal finances as an 
integral part of their quality of life. The Department equates 
financial readiness with mission readiness. When asked in 2005 on a 
blind survey to rate the stressors in their lives, Service members (as 
a group) rated finances as a more significant stressor than 
deployments, health concerns, life events, and personal relationships. 
They only rated work and career concerns as a higher stressor in their 
lives. As part of the social compact for financial readiness, the 
Department established a strategic plan to:
     Reduce the stressors related to financial problems--the 
stress associated with out of control debt can impact the performance 
of Service members and have major negative impact on family quality of 
life.
     Increase savings--establishes personal and family goals, 
motivates Service members to control their finances and live within 
their means.
     Decrease dependence on unsecured debt--reduces the 
stressors and vulnerabilities associated with living from paycheck to 
paycheck.
     Decrease the prevalence of predatory practices--provide 
protection from financial practices that seek to deceive Service 
members or take advantage of them at a time of vulnerability.
    The Department has taken action on obtaining these outcomes by 
providing financial awareness, education and counseling programs; by 
advocating the marketplace deliver beneficial products and services; 
and by advocating for the protection for Service members and their 
families from harmful products and practices.

Financial Education

    The Military Services are expected to provide instruction and 
information to fulfill the needs of Service members and their families. 
To this end, the Department established policy in November 2004: DoD 
Instruction 1342.27, Personal Financial Management Programs for Service 
Member.
    As outlined in the Government Accountability Office (GAO) Report 
05-348, the Military Services have their own programs for training 
first-term Service members on the basics of personal finance. These 
programs vary in terms of venue and duration; however, all Military 
Service programs must cover the same core topics to the level of 
competency necessary for first term Service members to apply basic 
financial principles to everyday life situations.
    The Department has tracked the ability of Service members to pay 
their bills on time as a reflection of their competency and ability to 
apply basic financial principles. Since 2002, self reported assessments 
through survey data have shown Service members are paying better 
attention to keeping up with their monthly payments.
    To assist the Military Services in delivering financial messages, 
the Department established the Financial Readiness Campaign in May 
2003, which has gathered the support of 26 nonprofit organizations and 
Federal agencies. In the past three years, Service members have 
benefited from the materials and assistance from over 20 active 
partnerships. These partnerships are on-going and have been developed 
to allow the Military Services to choose which partner programs can 
best supplement the education, awareness and counseling services they 
provide. The materials and services are not mandatory and do not take 
the place of the programs offered by the Military Services.
    Aspects of predatory lending practices are covered as topics in 
initial financial education training and in refresher courses offered 
at the military installations. The Military Services provide over 
10,000 classes and train approximately 24 percent of the force, as well 
as nearly 20,000 family members on an annual basis. These classes are 
primarily conducted on military installations located in the United 
States.
    In addition to these classes, Financial Readiness Campaign partner 
organizations conduct over a thousand classes for informing over 60,000 
Service members and family members per year. These classes are 
primarily provided by the staff of banks and credit unions located on 
military installations (military banks and defense credit unions). 
These institutions provide these classes as part of their 
responsibilities outlined in the DoD Financial Management Regulation. 
Other organizations involved include local Credit Counseling Agencies, 
State financial regulatory agencies, the InCharge Institute and the 
NASD Foundation.
    The Military Service financial educators, along with partner 
organizations, also distributed over 200,000 brochures and pamphlets, 
with the Military Services and Federal Trade Commission the primary 
provider of these products. In addition, Military Money Magazine has 
run several

[[Page 18159]]

articles, to include two cover article editions on predatory lending. 
The free distribution of the magazine is through military commissaries, 
family support centers, other service agencies on the installation, 
residents on the military installations and home addresses off the 
installation upon request. The distribution is approximately 250,000 
per quarter.

Lending Practices Considered Predatory

    As identified in GAO Report 05-349, DOD's Tools for Curbing the Use 
and Effects of Predatory Lending Not Fully Utilized, April 2005, the 
review of practices that are considered predatory has not benefited 
from a consistent definition that has been universally applied. 
However, sources studying the issue of predatory lending have focused 
on similar characteristics. GAO Report 04-280, Federal and State 
Agencies Face Challenges in Combating Predatory Lending, January 2004, 
said the following:

    While there is no uniformly accepted definition of predatory 
lending, a number of practices are widely acknowledged to be 
predatory. These include, among other things, charging excessive 
fees and interest rates, lending without regard to borrowers' 
ability to repay, refinancing borrowers' loans repeatedly over a 
short period of time without any economic gain for the borrower, and 
committing outright fraud or deception.

    This definition has been reiterated in the FDIC Office of the 
Inspector General Audit Report 06-0111, June 2006, which stated:

    Characteristics associated with predatory lending include, but 
are not limited to (1) abusive collection actions, (2) balloon 
payments with unrealistic repayment terms, (3) equity stripping 
associated with repeat financing and excessive fees, and (4) 
excessive interest rates that may involve steering a borrower to a 
higher-cost loan.

    These same characteristics were also identified in the DoD Report 
to Congress on Predatory Lending Practices Directed at Members of the 
Armed Forces and Their Dependents, August 9, 2006:

    Predatory lending in the small loan market is generally 
considered to include one or more of the following characteristics: 
High interest rates and fees; little or no responsible underwriting; 
loan flipping or repeat renewals that ensure profit without 
significantly paying down principal; loan packing with high cost 
ancillary products whose cost is not included in computing interest 
rates; a loan structure or terms that transform these loans into the 
equivalent of highly secured transactions; fraud or deception; 
waiver of meaningful legal redress; or operation outside of state 
usury or small loan protection law or regulation. The effect of the 
practices include whether the loan terms or practices listed above 
strip earnings or savings from the borrower; place the borrower's 
key assets at undue risk; do not help the borrower resolve their 
financial shortfall; trap the borrower in a cycle of debt; and leave 
the borrower in worse financial shape than when they initially 
contacted the lender.

    While the Report to Congress provides a more expansive definition, 
there are several commonalities between the definitions listed above:
--Lending without regard of the borrowers ability to repay;
--Excessive fees and excessive interest rates;
--Balloon payments with unrealistic repayment terms;
--Wealth stripping associated with repeat rollovers/financing; and
--Fraud and deception.
    The Department started collecting information on high cost lending 
in 2004 as part of the Defense Manpower and Data Center annual surveys 
of active duty Service members. The survey requested input on payday 
loans, rent-to-own, refund anticipation loans and vehicle title loans. 
GAO Report 05-359 focused on these four practices and obtained feedback 
from ``command leaders, [Personal Financial Management] PFM program 
managers, command financial counselors, legal assistance attorneys, 
senior noncommissioned officers (pay grades E8 to E9), chaplains, and 
staff from the military relief/aid societies,'' concerning these 
practices. Input from these individuals, among others was that ``The 
extent to which active duty Service members use consumer loans 
considered to be predatory in nature and the effects of such borrowing 
are unknown, but many sources suggest that providers of such loans may 
be targeting Service members.''
    The Report to Congress reviewed five products (payday loans, 
vehicle-title loans, rent-to-own, refund anticipation loans and 
military installment loans) identified by installation-level financial 
counselors (employed as PFM program managers and employed by the 
Military Aid Societies) and legal assistance attorneys who regularly 
counsel service members on indebtedness issues. When compared against 
the common characteristics listed above, the five products reviewed in 
the Report to Congress measure up somewhat differently:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Without regard for                                       Unrealistic payment           Repeated rollover/
           Lending product             borrowers ability to repay  Excessive fees and interest            schedule                   refinancing
--------------------------------------------------------------------------------------------------------------------------------------------------------
Payday loan.........................  X                            X                            X                            X
Vehicle title loan..................  X                            X                            X                            X
Military installment................  ...........................  X                            ...........................  ...........................
Refund anticipation.................  ...........................  X                            ...........................  ...........................
Rent-to-own.........................  X                            X                            ...........................  ...........................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    A major concern of the Department has been the debt trap some forms 
of credit can present for Service members and their families already 
burdened with debt and recurring bills. The combination of little to no 
regard for the borrower's ability to repay the loan, unrealistic 
payment schedule, high fees and interest and the opportunity to 
rollover the loan instead of repaying it, can create a cycle of debt 
for financially overburdened Service members and their families.
    Consumer groups, news media, and academics have chronicled concerns 
about payday loans and the propensity for this lending practice to 
create a cycle of debt. For example, M. Flannery and K. Smolyk state 
the following in their June 2005 FDIC Financial Research Working Paper 
No. 2005-09:

    Although as economists we find it hard to define what level of 
use is excessive, there seems little doubt that the payday advance 
as presently structured is unlikely to help people regain control of 
their finances if they start with serious problems.

    Likewise, vehicle title loans are similarly structured, with 
potentially similar results. According to a November 2005 report by the 
Consumer Federation of America, vehicle title loans are generally made 
for 30 days with high interest/fee structures (average of 295 APR). 
Limits on title loans vary by State concerning interest rates, 
duration, rollover allowances and rules on repossessing the vehicle. 
Only four states cap interest rates at less than 100% APR. In many 
states these loans can be rolled over by the borrower

[[Page 18160]]

several times if the borrower is unable to pay the principal and 
interest when due. If not paid or rolled over, many states allow the 
creditor to repossess the vehicle and in some states the borrower is 
not entitled to any portion of the proceeds of the vehicle sale. Loan 
amounts average 55 percent of the value of the vehicle.
    Rent-to-own, refund anticipation loans and some military 
installment loans present products with high fees and interest. Rent-
to-own, which is not covered as credit under the Truth-in-Lending Act 
(TILA), can represent an expensive alternative to credit when used as a 
means of purchasing an item. Military installment loans (an installment 
loan marketed primarily or exclusively to the military) can represent a 
high cost over the duration of the loan, particularly when other non 
TILA fees and charges are added to the interest rate. Tax refund 
anticipation loans also cost Service members and their families high 
fees when they can easily obtain rapid returns through electronic 
filing with the assistance of their installation legal assistance 
office.
    Refund anticipation loans (RALs) provide a limited time advantage 
(approximately 10 day reduction in the time required to receive a tax 
return) in comparison to the cost involved ($39-$100). As a 
consequence, the annual percentage rate for this credit can be triple 
digit. A study by Gregory Elliehausen of the Credit Research Center 
(CRC) (Monograph 37, April 2005) showed that more individuals 
below 35 years old use RALs (61 percent) as compared to the percentage 
under 35 years old who head households (28.6 percent). Seventy nine 
percent of Service members are age 35 or below.
    The rationale for a borrower wanting to obtain a RAL vary; however, 
the CRC study showed that 41 percent of borrowers obtaining RALs did so 
to pay bills, 21 percent due to unexpected expenditures, 15 percent to 
make purchases, 15 percent because of impatience and 7 percent for 
other reasons. Less than one percent said they obtained a RAL to pay 
for tax preparation. Through the Armed Forces Tax Council, in 
collaboration with the IRS, Volunteer Income Tax Assistance (VITA) 
sites are located on all active duty military installations to assist 
Service members and their families with preparation and electronic 
filing of their tax returns.
    As with other forms of short term high cost credit, the Department 
would prefer Service members and their families to consider low cost 
alternatives to resolve their financial crisis with the perspective 
that they should establish a more solid footing for their personal 
finances. The CRC study showed similar patterns of use of credit and 
debt burden between users of RALs and payday loans. Additionally, 
through education the Department attempts to persuade Service members 
that planning is an important part of managing finances, and a high 
cost 10 day loan does not reinforce this lesson.
    The five products reviewed in the Report to Congress represent two 
kinds of financial problems for Service members and their families: 
Those products that contribute to a cycle of debt (payday and vehicle 
title loans) and those products that can cost the military consumer 
high fees and interest costs (rent-to-own, installment loans and refund 
anticipation loans). Cycle of debt represents a more significant 
concern to the Department than the high cost of credit.

Alternatives

    The Department would prefer Service members and their families who 
experience financial duress seek out the alternatives available through 
Military Aid Societies, military banks and defense credit unions rather 
than credit products that would more likely mire them in a cycle of 
debt. These institutions have established programs and products 
designed to help Service members and their families resolve their 
financial crises, rebuild their credit and establish savings.
    The Military Aid Societies are strong advocates for limiting the 
cost associated with credit and for creditors to develop alternative 
products for Service members who cannot otherwise qualify for loans. 
Within their own resources they provided $87.3 million in no cost loans 
and grants to Service members and their families in 2005. These funds 
were provided for emergencies and essentials, such as rent, food, and 
utilities.
    Banks and credit unions located on military installations also 
understand the need to provide products and services that can help 
those who mishandle their finances and who may need remedial 
assistance. A review of on-base financial institutions surfaced 24 
programs on 51 military installations in the U.S. providing alternative 
small loan products designed to help Service members and their families 
to recover from their financial problems. These financial institutions 
supplement the emergency funding made available by the nonprofit 
Military Aid Societies that provide grants and no-interest loans to 
needy Service members and families.
    These banks and credit unions provide low denomination loans at 
reasonable annual percentage rates designed to assist their members who 
need to get out of high cost credit and into more traditional lending 
products. Financial counseling and education are often prerequisites 
for the short term loan and some institutions have attached a 
requirement to develop savings as part of the loan.
    Many of these military banks and credit unions use their products 
and services to maintain a watchful eye over their members to ensure 
they do not abuse services designed to assist them, such as overdraft 
protection, which if used on a chronic basis, can become very expensive 
and propel someone already overextended into a deeper spiral of debt. 
Representatives of the Association of Military Banks of America had an 
opportunity to showcase their alternative small loan products at a FDIC 
Conference held in December of 2006. FDIC hosted this conference to 
spotlight the need to develop more of these types of products for 
Service members and their families and several banks and credit unions 
described above that currently provide such favorable credit to Service 
members participated in the conference.

Efforts To Curb the Prevalence and Impact of Predatory Loans

    The Department has found that it has a small window of opportunity 
to inform and convince young Service families of what may constitute a 
beneficial product that can fit their circumstances, particularly when 
they receive many messages to the contrary. Nonetheless, the Department 
has attempted to use the processes and resources available within the 
Department to curb the prevalence of high cost short term lenders, 
particularly those that can contribute to a spiral of debt.
    Predatory lenders have seldom been placed off-limits, primarily 
because the process associated with placing commercial entities off-
limits, through the review and recommendations of the Armed Forces 
Disciplinary Control Board (AFDCB), is not well suited to this purpose. 
The AFDCB, covered by Joint Army Regulation 190-24, is designed to make 
businesses outside of military installations aware that their practices 
cause morale and discipline concerns and to offer these businesses an 
opportunity to modify their practices to preclude being placed off-
limits. When the commercial entity refuses to comply, the AFDCB 
recommends to the regional command authority to place the business off-
limits for all Service

[[Page 18161]]

members within the region (regardless of Service).
    Normally concerns are raised when a business has demonstrated 
practices that violate state or federal statute, and remediation 
involves the business curtailing these illegal practices. In the case 
of the loan products listed above, businesses usually offer their 
services within the legal limits. Since the AFDCB takes on businesses 
one at a time, bringing a lender under scrutiny has been difficult if 
the lender is complying with the same rules as its competitors. 
Additionally, the magnitude of mediating with the number of outlets 
surrounding military installations has exacerbated the process. As 
illustrated in research by Professor Steven M. Graves and Professor 
Christopher L. Peterson published in the Ohio State Law Journal, Volume 
66, Number 4, 2005, ``Predatory Lending and the Military: The Law and 
Geography of `Payday' Loans in Military Towns,'' there are large 
numbers of payday lenders which can be found in communities around 
military installations.
    Also, without appropriate authority, commanders and AFDCBs have 
difficulty citing lenders offering payday, auto title and refund 
anticipation loans as needing to take remedial action. In States that 
authorize these types of loans, AFDCBs must establish their own local 
guidelines in addition to the provisions of Federal and State law, 
ensure all affected businesses are aware of these new rules, and then 
require these businesses to comply.
    The Department has considered establishing guidelines that would 
ameliorate the concerns posed by lenders characterized above, but 
establishing these policies within DoD poses legal problems and raises 
the potential for litigation against the Department. Prior to the 
Talent-Nelson Amendment of the John Warner National Defense 
Authorization Act of 2007 (10 U.S.C. 987), there has not been any 
established authority for DoD to make rules governing credit offered by 
off-base private businesses. Commercial businesses offering these loans 
could view DoD rules as restrictions outside of the existing statutes 
and policies governing these entities and burdens provided without 
sufficient statutory authority to establish rules governing their 
businesses. Without sufficient authority, the Department would have 
difficulty making ``off limits'' declarations enforceable and could 
lead to legal action.
    As State governments have considered restricting or controlling 
payday lending, the Department has provided information concerning this 
issue and has extended its support for these measures to the extent 
that these provisions protect Service members and their families. 
Internet lenders claim jurisdiction in States with lax protections and 
unlimited rates and often attempt to bypass the State credit, usury or 
payday loan laws of the State where the borrower receives the loan. 
State regulators have successfully enforced home-State law against 
Internet payday lenders making loans to consumers in their States in 
Colorado, New York, Massachusetts, Kansas, Pennsylvania, and the 
District of Columbia.
    As stated above, the Department will continue to provide education, 
awareness and counseling programs to influence skills and attitudes 
towards managing personal resources wisely. There still remains a gap 
between the opportunity to influence a young Service member or family 
concerning the best way to manage their finances, and the level of 
experience and capability necessary to be successful. The Department 
has a limited opportunity to impress upon these young people the 
importance of managing their resources, and does not have sufficient 
control over the behavior of Service members and their families to 
preclude them taking on financial risks that can impact not only their 
quality of life, but also the mission performance of Service members.
    The Department will continue to send Service members messages that 
they and their families need to manage their resources wisely for their 
own benefit and to maintain personal readiness. The Department's call 
for responsibility competes with market messages from the sub-prime 
financial industry to get cash now for purchases, vacations, and paying 
bills. Their marketing stresses the ease and convenience of obtaining 
these loans, with virtual guarantee of approval. These messages can be 
particularly alluring to Service members and families already over 
burdened with bills and debts. A 2006 survey accomplished by the 
Consumer Credit Research Foundation stated that the primary reason 
Service members choose payday loans is because they are convenient. 
Certainly, obtaining ``fast cash'' from a payday lender is far more 
convenient than considering uncontrolled debt or addressing inherent 
overspending that creates situations where sub-prime loans are needed.
    Service members have inherently understood that limits on interest 
rates are appropriate, even if these limits would decrease the 
availability of credit. When asked in a 2006 survey conducted by the 
Consumer Credit Research Foundation if Service members strongly/
somewhat agree or disagree with the statement: ``The government should 
limit the interest rates that lenders can charge even if it means fewer 
people will be able to get credit,'' over 74 percent of the Service 
members surveyed agreed with the statement (with over 40 percent 
strongly agreeing). Similarly when asked their position on the 
statement ``There is too much credit available today,'' 75 percent of 
Service members not using payday loans and 63 percent of Service 
members using payday loans agreed (with 51 percent of non users 
strongly agreeing).

``Limitations on Terms of Consumer Credit Extended to Service Members 
and Dependents,'' John Warner National Defense Authorization Act for 
Fiscal Year 2007

    After both the Congressional Banking and Armed Service Committees 
reviewed the issue of predatory lending directed at members of the 
Armed Forces and their dependents, the Armed Service Committees 
included Sec.  670 in the John Warner National Defense Authorization 
Act for Fiscal Year 2007. The resulting statute, 10 U.S.C. 987, directs 
the Secretary of Defense to establish policy to implement the 
provisions of the statute. The Secretary is to accomplish the 
regulation prior to October 1, 2007, when the statute goes into effect, 
and to draft the regulation in consultation with the Department of 
Treasury, Office of the Comptroller of the Currency, Office of Thrift 
Supervision, Board of Governors of the Federal Reserve System, Federal 
Trade Commission, Federal Deposit Insurance Corporation, and the 
National Credit Union Administration. Specifically, section (h)(2) 
requires the Secretary of Defense to define key terms as part of 
developing the regulation:
    ``(A) Disclosures required of any creditor that extends consumer 
credit to a covered member or dependent of such a member.
    (B) The method for calculating the applicable annual percentage 
rate of interest on such obligations, in accordance with the limit 
established under this section.
    (C) A maximum allowable amount of all fees, and the types of fees, 
associated with any such extension of credit, to be expressed and 
disclosed to the borrower as a total amount and as a percentage of the 
principal amount of the obligation, at the time at which the 
transaction is entered into.

[[Page 18162]]

    (D) Definitions of `creditor' under paragraph (5) and `consumer 
credit' under paragraph (6) of subsection (i), consistent with the 
provisions of this section.
    (E) Such other criteria or limitations as the Secretary of Defense 
determines appropriate, consistent with the provisions of this 
section.''
    This broad latitude allows the Department of Defense to determine 
the scope and impact of the regulation, consistent with the provisions 
of the statute. These provisions have been established to protect 
Service members and their families from potentially abusive lending 
practices and products. The provisions, or terms, of the statute 
provide several limitations on credit transactions, and the statute 
allows the Department to focus these limitations on areas that create 
the most concern.
    Through correspondence received from numerous creditors and trade 
associations representing creditors, the Department has learned of the 
potential unintended consequences of these limitations that could 
potentially preclude Service members and their families from receiving 
a multitude of credit products not determined as harmful. These 
commenters suggested, as a simple way to limit the potential unintended 
consequences of the rule and adverse impact on the availability of 
credit for Service members by regulated depository institutions and 
their subsidiaries, that the regulations include a complete or limited 
carve-out from the ``creditor'' definition of insured depository 
institutions and their subsidiaries. As described in the section-by-
section description that follows, the Department did not specifically 
propose to exclude any types of lenders from the regulatory definition 
of ``creditor.'' The intent of the statute is clearly to apply these 
limitations so that their impact is upon credit practices evaluated as 
negative without impeding the availability of credit that is benign or 
beneficial to Service members and their families. The Department is 
proposing a regulation it believes is fully consistent with this 
intent.
    QUESTION 1: However, we seek comment on whether the final 
regulation should exclude regulated banks, credit unions and savings 
associations and their subsidiaries from coverage by the regulation 
generally, or in limited circumstances such as in the following 
circumstances: (1) the depository institutions are subject to 
supervision and regulation by a federal regulatory agency; (2) the 
institution extends covered ``consumer credit''; (3) the extension of 
consumer credit by the institution is subject to supervisory guidance 
by the federal bank regulatory agency that addresses consumer 
protection, disclosure, and safety and soundness criteria applicable to 
such lending; and (4) the federal bank regulatory agency agrees to act 
on matters referred to it by the Department concerning complaints that 
such lending to a covered member may be inconsistent with the 
supervisory guidance, applicable law, or is having an adverse effect on 
military readiness. Would depository institutions find an exclusion 
that is limited in this manner useful? The Department notes that if the 
final regulatory definition includes additional limitations on the 
definition of covered ``creditor,'' it would not be precluded from 
expanding that definition in the future as appropriate to address new 
concerns or changed circumstances.

II. Description of the Regulation, By Section:

    232.1 and 232.2, Authority, purpose and coverage, and 
Applicability: No further descriptions provided other than that 
contained in the regulation.
    232.3, Definitions:
    In drafting a regulation to implement the statute, the Department 
has chosen to use the opportunity to define the terms ``creditor'' and 
``consumer credit'' judiciously, having heard from numerous groups 
through comments received in response to Federal Register notice DoD-
2006-OS-0216, solicited and unsolicited comments and through meetings 
requested of the Department that applying the provision broadly would 
create numerous unintended consequences. These unintended consequences 
would have a ``chilling effect'' on the availability of consumer credit 
covered as part of the statute.
    In defining the term creditor, the statute provides the following:
    ``(5) CREDITOR.--The term `creditor' means a person--
    (A) who--
    (i) is engaged in the business of extending consumer credit; and
    (ii) meets such additional criteria as are specified for such 
purpose in regulations prescribed under this section; or
    (B) who is an assignee of a person described in subparagraph (A) 
with respect to any consumer credit extended.''
    Consistent with the statute, the proposed regulation defines 
``creditor'' as any person who extends consumer credit covered by part 
232. For this purpose a ``person'' includes both natural persons as 
well as business entities, but would exclude governmental entities. 
Pursuant to the Department's authority to specify additional criteria, 
a person would be a creditor only if the person is also a ``creditor'' 
for purposes of the Truth in Lending Act. For clarity, the Department 
has implemented the provision covering assignees by including a 
specific reference to assignees in each section of the regulation that 
would apply to an assignee, in lieu of including assignees in the 
definition of ``creditor.'' See sections 232.4, 232.8 and 232.9.
    The definition of consumer credit provided in the statute is as 
follows:
    ``(6) CONSUMER CREDIT.--The term `consumer credit' has the meaning 
provided for such term in regulations prescribed under this section, 
except that such term does not include (A) a residential mortgage, or 
(B) a loan procured in the course of purchasing a car or other personal 
property, when that loan is offered for the express purpose of 
financing the purchase and is secured by the car or personal property 
procured.''
    This proposed regulation seeks to address the concerns addressed by 
many institutions and associations that corresponded with the 
Department by limiting the scope of the products upon which the 
provisions of the statute would apply. It is clearly the intent of the 
statute that consumer credit be defined by the Department, as long as 
it does not include the two listed exemptions. The definition in this 
proposed regulation clearly excludes these two types of loans and 
focuses on three problematic credit products that the Department 
identified in its August 2006 Report to Congress on the Impact of 
Predatory Lending Practices on Members of the Armed Forces and Their 
Dependents: payday loans, vehicle title loans, and refund anticipation 
loans.
    With respect to exclusion of ``residential mortgages'' the proposed 
regulation clarifies that the exclusion applies to any credit 
transaction secured by an interest in the borrower's dwelling. Thus, 
home-purchase transactions, refinancings, home-equity loans, and 
reverse mortgages would be excluded. Home equity lines of credit are 
also excluded. In addition, the property need not be the consumer's 
primary dwelling to qualify for the exclusion. A ``dwelling'' includes 
any residential structure containing one to four units, whether or not 
the structure is attached to real property, and would also include an 
individual condominium unit, cooperative unit, mobile home, and 
manufactured home.
    The Department's proposed definition of the term ``consumer 
credit'' is intended to narrow the regulation's

[[Page 18163]]

impact to consumer credit products and services that are potentially 
detrimental and for which there are DoD-recommended, alternative 
products or services available to Service members and their families. 
DoD believes that a narrow definition can prevent unintended 
consequences while affording the protections granted by the statute.
    In addition to the above criteria, the Department intends to use 
the definition of consumer credit to encourage the financial services 
industry to offer affordable small loans for Service members and their 
families.

Payday Loans

    Payday loans have common characteristics that make them detrimental 
to a Service member's financial well being and inferior to alternative 
sources of emergency support. These characteristics can exacerbate a 
cycle of debt, particularly if the borrower is already over-extended 
through the use of other forms of credit. The proposed regulation 
defines ``Payday loans'' based on certain characteristics, in order to 
distinguish them from other financial products. A payday loan is 
defined as a closed-end credit transactions having a term of 91 days or 
less, where the amount financed does not exceed $2,000. The ``amount 
financed'' is not defined in this regulation, but must be determined 
based on the definition of that term in the Federal Reserve Board's 
Regulation Z, which implements the Truth in Lending Act. In addition, 
the definition of ``payday loan'' is limited to transactions where the 
borrower contemporaneously provides a check or other payment instrument 
that the creditor agrees to hold, or where the borrower 
contemporaneously authorizes the creditor to initiate a debit or debits 
to the covered borrower's deposit account.
    Payday loans, otherwise known as deferred presentment loans, are 
allowed in 39 States as a separate credit product from other forms of 
credit regulated by Federal or State statute. States authorizing these 
types of loans require payday lenders to obtain a license to operate 
within the State. States have defined these products and services, 
primarily through the basic process used to secure a payday loan, 
either through holding a check or by obtaining access to a bank account 
through electronic means. These basic processes have been included as 
part of the definition of payday loans in the regulation (Section 
232.3(c)). Many States have also established limits to the amount that 
can be borrowed and the duration of the loan as part of the authorized 
activities of lenders licensed to offer these products and services. A 
review of State limits for payday loans establishes a foundation for 
the definition used in this regulation.
    The majority of States have a maximum dollar amount, maximum time 
limits and maximum fees that regulate the product. Six States (New 
Mexico, Oregon, Texas, Utah, Wisconsin and Wyoming) have no dollar 
limit on the amount that can be loaned, and nine States (Alaska, 
Arizona, Idaho, New Mexico, Rhode Island, South Dakota, Virginia, 
Wisconsin and Wyoming) have no maximum limit established for the 
duration of a payday loan. Of the States with dollar and duration 
limits, the maximum amount loaned is $1,000 (Idaho and Illinois) and 
the maximum duration of a loan is 180 days (Ohio). The average dollar 
limit is $519 and the average duration limit is 46 days.
    Payday loans offered over the internet often originate in States 
with no limits on fees or maximum loan amounts. A survey of Web sites 
offering payday loans indicates $1,500 as generally the maximum amount 
loaned. A review of sites marketing ``Military Payday Loans'' refer to 
loans of up to 40 percent of a Service member's take home pay. This 
amount can vary considerably based on rank, other entitlements, tax 
withheld and military allotments. For married enlisted Service members 
in the grade of E-6 and below (no deductions for taxes or other 
allotments), the proposed limit would cover a loan made for 40 percent 
of take home pay. The limits established in the definition for payday 
loans reflect the maximum duration and amount anticipated for loans 
based on current State practices, to include internet payday loans 
originating from locations without limits. QUESTION 2: The Department 
seeks comments concerning whether the duration limit and monetary limit 
on the amount of the loan included in the definition of payday lending 
creates any unintended consequences for other credit products.
    The definition provided in 232.3(b)(1)(A)(ii) includes the 
following statement: ``This provision does not apply to any right of a 
depository institution under statute or common law to offset 
indebtedness against funds on deposit in the event of the covered 
borrower's delinquency or default.'' This exemption only applies if the 
depository institution has a right of offset under State or other 
applicable law.
    As previously stated, the Department's intention is that the 
definition of payday loans does not impede creditors providing 
alternatives to payday loans with high fees. The Department's August 
2006 report to the Congress describes a variety of affordable credit 
products that banks and credit unions located on military installations 
offer to members of the armed services. Such loans generally had annual 
percentage rates (APRs) for Truth in Lending Act purposes of 18% or 
less. Because the loans may be for a small dollar amount, any flat fee 
charged by the lender in connection with originating the loan could 
cause the Military Annual Percentage Rate (MAPR), defined by the 
proposed regulation, to exceed 36% even though the interest rate may be 
much lower.

Vehicle Title Loans

    The Department believes that vehicle title loans meet the proposed 
definition of consumer credit, and that subjecting them to the proposed 
rule is consistent with the Department's intent in developing the 
regulation. The definition for ``vehicle title loans'' limits the 
rule's coverage to loans of 180 days or less. Many States have not 
established statutes overseeing these loans. A 2005 survey of States 
conducted by the Consumer Federation of America (CFA) found that, of 
the 16 States authorizing vehicle-title lending, 10 require 30 day or 
one month term limits (with authorized renewals or extensions), one 
State allows up to 60 days (with 6 renewals), one State requires 
installments and four States do not establish term limits. QUESTION 3: 
The Department seeks comments as to whether the limits established for 
vehicle title loans for duration of the loan included as part of the 
definition cause any unintended consequences for other credit products.

Refund Anticipation Loans

    The Department believes that covering RALs is consistent with the 
intent of the Department's proposed regulation. RALs can also be 
defined to limit unintended consequences and refunds can be provided 
expeditiously. There have been only a few States that have developed 
statutes concerning RALs. Connecticut is the only state that has 
established a rate cap, and prohibit transactions where the APR exceeds 
60 percent. Other states, such as California, Washington, Oregon and 
Nevada have established statutes specifying disclosure requirements for 
RALs.
    The Department is interested in ensuring that lenders continue to 
offer responsible, small-dollar loan products that meet the credit 
needs of service members and their families. QUESTION 4: Accordingly, 
the Department solicits comments on regulatory approaches

[[Page 18164]]

that would encourage creditors to offer affordable, small-dollar, 
short-term loans to Service members and their dependents. For example, 
should transactions that would otherwise be covered as payday loans be 
exempt from coverage under these rules if the MAPR is less than 24% 
MAPR or some other rate specified in the rules? Would a similar rule be 
appropriate for vehicle-title loans or tax refund anticipation loans? 
Are there other approaches that DoD should consider?
    The definition of MAPR creates a distinctive percentage rate that 
reflects the provisions of the statute. The MAPR does not include fees 
imposed for unanticipated late payments, default, delinquency or a 
similar occurrence, because such fees are imposed as a result of 
contingent events that may occur after the loan is consummated. Thus, 
such fees are not included in the computation of the maximum 36% MAPR 
cap imposed by these rules. QUESTION 5: The Department solicits comment 
on whether there are other fees that should be expressly excluded for 
the same reason.
    232.4, Terms of consumer credit extended to covered borrowers: This 
section implements the statutory prohibition limiting the amount that 
creditors may charge for extensions of consumer credit to covered 
borrowers. The proposed rule mirrors the statutory language. This 
section also applies to ``assignees'' consistent with the statutory 
definition of ``creditor.''
    232.5, Identification of covered borrower:
    The Department has received several comments expressing concern 
over the potential difficulty in identifying a covered borrower, 
particularly in light of the penalties for failing to provide the 
statutory protections to a covered borrower. While DoD recognizes this 
concern, the Department would emphasize that identifying the covered 
borrower is only relevant in the context of transactions defined by the 
regulation as consumer credit (for payday loans, vehicle title loans 
and refund anticipation loans).
    The Department's intent is to balance protections for covered 
borrowers (according to the statute) and protections for creditors. The 
Department understands creditors may otherwise decline offering 
beneficial credit products to covered borrowers as a result of concerns 
over penalties. To achieve an appropriate balance, the Department has 
proposed a safe harbor, under which the creditor may require the 
applicant to sign a statement declaring whether or not he or she is a 
covered borrower (using the definition from the statute). If required 
by the creditor, this declaration provides a ``safe harbor'' for the 
creditor to prevent inadvertently violating the statute by failing to 
recognize a covered borrower.
    There is one caveat to this ``safe harbor'' provision. If the loan 
applicant signs a declaration that denies being a covered borrower, but 
the creditor obtains documentation as part of the credit transaction 
reflecting that the applicant is a covered borrower (such as, a current 
military leave and earning statement as proof of employment, or a tax 
filing that takes advantage of a specific tax provision designed to 
benefit the military), the applicant's declaration would not create a 
safe harbor for the creditor. In such cases creditors should seek to 
resolve the inconsistency, but if they are unable to do so, they may 
avoid any risk of noncompliance by treating the applicant as a covered 
borrower based on the documentation or by declining to extend credit 
due to the inability to verify information provided in the borrower's 
signed declaration.
    This caveat is being included to prevent creditors from using the 
declaration to allow covered borrowers to waive their right to the 
protections provided by the regulation. This may occur when the 
creditor recognizes the applicant is a covered borrower, as a result of 
the documents presented as part of the credit transaction. The intent 
of this caveat is not to hold the creditor accountable for false 
statements made by an applicant when there is no indication through the 
credit transaction that the applicant is a covered borrower.
    The opposite situation, where an applicant claims to be a covered 
borrower without presenting proof of his or her status does not require 
further validation by the creditor. However, creditors have the option 
of verifying the applicant's status as a covered borrower using several 
sources of information, but they are not required to do so. Thus, 
creditors may request applicants to provide proof of their current 
employment and income, for example by requesting from service members a 
copy of the most recent month's military leave and earning statement. 
Creditors may also request service members or dependents to provide a 
copy of their military identification card.
    These sources, however, might not always be determinative. For 
example, in some a cases a leave and earnings statement might not 
reflect a recent change in the applicant's active duty status. Military 
identification cards, that are the same as identification cards carried 
by members of the active component, are issued to members of the 
National Guard and the Reserve regardless of their duty status. Hence, 
the proposed regulation states ``[u]pon such request, activated members 
of the National Guard or Reserves shall also provide a copy of the 
military orders calling the covered member to military service and any 
orders further extending military service.'' This would also be the 
case for their dependents. The proposed rule does not provide a safe 
harbor to creditors in the situation described in this paragraph.
    It is the Department's understanding that providing proof of 
employment is a prerequisite to receiving a payday loan or a vehicle 
title loan. The military leave and earning statement is the document 
that provides validation of employment. There are several tax 
provisions which are directed toward assisting the military. If the tax 
preparer includes these provisions as part of the tax return, the 
creditor should be made aware of this disclosure in order to validate 
the status of the applicant prior to processing the application for a 
refund anticipation loan. QUESTION 6: The Department would like 
feedback on the creditor's involvement in tax filing aspects of a 
refund anticipation loan.
    The Department intends to provide access to a database to creditors 
to validate the status of an applicant. This arrangement is currently 
available to creditors to validate the active duty status of Service 
members as part of implementation of benefits authorized by the Service 
Members Civil Relief Act (https://www.dmdc.osd.mil/scra/owa/home). The 
proposed database will include the status of covered borrowers and can 
be used to resolve questions creditors may have about the status of an 
applicant who denies being a covered member and yet presents 
information during the credit transaction that is contrary to this 
declaration. In these situations, the database would provide the most 
accurate verification of the status of the applicant, to include 
activated members of the National Guard and Reserve and their 
dependents.
    QUESTION 7: Since this issue is critical to the success of the 
regulation, and also protecting the reputation of the creditor, the 
Department solicits further comment on the proposed ``safe harbor'' 
concept and the methodology proposed to implement the intended balance 
in approach to identification.
    232.6, Mandatory disclosures:
    Section 232.6 describes the disclosures that must be provided to 
covered borrowers before they become obligated on a consumer credit 
transaction, which includes the new

[[Page 18165]]

disclosures established under 10 U.S.C. 987 but also includes 
disclosures that creditors are already required to provide pursuant to 
the Federal Reserve Board's Regulation Z, which implements the Truth in 
Lending Act (TILA). Regulation Z contains certain requirements 
pertaining to the format of the TILA disclosures for closed-end credit 
transactions, including a requirement that they ``shall be grouped 
together, shall be segregated from everything else, and shall not 
contain any information not directly related'' to the disclosures 
required under Regulation Z. The Department intends that the 
disclosures required under this proposal be provided consistent with 
the format requirements of Regulation Z. Accordingly, the covered 
borrower identification statement described in Sec.  232.5 and the 
disclosures provided pursuant to Sec.  232.6(a)(1), (3), and (4) should 
not be interspersed with the TILA disclosures.
    The general rule is that disclosures required by Sec.  232.6(a)(1), 
(3), and (4) must be provided orally as well as in writing. However, in 
credit transactions entered into by mail or on the internet, a creditor 
complies with this requirement if the creditor provides covered 
borrowers with a toll-free telephone number on or with the written 
disclosures and the creditor provides oral disclosures when the covered 
borrower contacts the creditor for this purpose.
    As with identification of the covered borrower, the Department has 
received several comments about potential disparities in disclosures 
required by this regulation as opposed to TILA, as well as the 
difficulty of potentially presenting disclosures orally under part 232 
when an offer is made through the mail or over the internet. QUESTION 
8: The Department requests comment on whether the proposed rule for 
providing certain disclosures orally adequately addresses the 
compliance difficulties associated with the statutory requirements for 
oral disclosures, or whether another approach is more appropriate.
    As with other aspects of the statute, the Department's intention 
has been to develop a regulation that is true to the intent of the 
statute without creating a system that is so burdensome that the 
creditor cannot comply. The Department also recognizes the potential 
confusion inherent in mandating the disclosure of two annual percentage 
rates (the MAPR required by this regulation and the APR required by 
TILA). QUESTION 9: DoD therefore seeks comments on this proposed 
requirement and invites suggestions on alternative approaches.
    232.7, Preemption: The proposed regulation would implement the 
statutory provision. Although revisions have been made to the statutory 
language for clarity, no substantive change is intended.
    232.8, Limitations:
    Section 232.8(a) implements the statutory provision in 10 U.S.C. 
987(e)(1), which prohibits a creditor from extending consumer credit to 
a covered borrower in order to roll over, renew, or refinance consumer 
credit that was previously extended by the same creditor to the same 
covered borrower. The proposed regulation includes a limited exception 
to this prohibition, however, to permit workout loans and other 
refinancings that may benefit the borrower. QUESTION 10: The Department 
solicits comment on whether it can or should adopt this approach.
    QUESTION 11: Assuming the final rule permits a creditor to roll 
over, renew or refinance credit that it previously extended to the same 
covered borrower in limited circumstances, the Department solicits 
comment on whether it can and should also adopt a rule clarifying that 
refinancings or renewals of a covered loan require new disclosures 
under Sec.  232.6 only when the transaction would also be considered a 
new transaction that requires Truth in Lending Act disclosures. Whether 
or not new disclosures are required, the Department believes that when 
a creditor refinances or renews credit that it extended to a covered 
borrower the limitations on rates and terms apply in the same manner as 
they would for the original consumer credit transaction.
    In some cases, a consumer might become a covered borrower after 
obtaining consumer credit. When consumers request to refinance or renew 
a short-term loan, creditors are likely to rely on their original 
determination that the consumer is not a covered borrower. The 
Department believes that it would be unnecessarily burdensome to impose 
a duty on creditors to make a new determination in each transaction 
given that a change in the borrower's status will infrequently occur 
with short-term transactions. Accordingly, the proposed rule would not 
apply when the same creditor extends consumer credit to a covered 
borrower to refinance or renew an extension of credit that was not 
covered by Part 232 because the consumer was not a covered borrower at 
the time of the original transaction.
    QUESTION 12: The Department solicits comment on this approach. If 
such transactions were to be covered, however, should the disclosures 
in Sec.  232.6 only be required for transactions also deemed to be 
transactions requiring new disclosures under the Truth in Lending Act?
    Subparagraph (a)(3) makes it unlawful for any creditor to extend 
consumer credit to a covered borrower if the ``creditor requires the 
covered borrower to submit to arbitration or imposes other onerous 
legal notice provisions.'' The requirement is in accordance with 10 
U.S.C. 987(e)(3). QUESTION 13: The Department does not have the 
specific notice provisions or examples to include with this regulation 
and requests feedback on particular legal notice provisions that should 
be considered onerous.
    Similarly, subparagraph (a)(4) makes it unlawful for any creditor 
to extend consumer credit to a covered borrower if the ``creditor 
demands unreasonable notice from the covered borrower as a condition 
for legal action.'' This requirement is in accordance with 10 U.S.C. 
987(e)(4), and as with onerous legal notice provisions, the Department 
does not have specific unreasonable notices or examples to include in 
the regulation. QUESTION 14: Feedback is also requested on this 
provision and particular notice requirements that should be considered 
unreasonable.
    Section 232.8(a)(5) provides an exemptions to creditors, with 
respect to consumer credit, to use electronic fund transfer to repay a 
consumer credit, require direct deposit of the consumer's salary as a 
condition of eligibility for consumer credit, or take a security 
interest in funds deposited after the extension of credit in an account 
established in connection with the consumer credit transactions that 
are below 36% MAPR. This exemption is made with the recognition that 
this exemption must be provided in compliance with other applicable 
statutes governing the use of electronic fund transfers, savings and 
direct deposit of consumer's salary. The Department believes the 
flexibility provided by the 10 U.S.C. 987(h)(2)(E) may allow the 
Department the authority to provide this exemption to facilitate 
creditors to make alternative loans designed to assist covered 
borrowers with financial recovery. The Department believes providing 
this opportunity is important in fulfilling the Department's intended 
purpose of encouraging creditors to provide alternative loan products. 
QUESTION 15: The Department solicits comments on whether it can or 
should adopt this proposed exemption.
    Section 8(a)(7) prohibits creditors from charging a prepayment 
penalty to

[[Page 18166]]

covered borrowers. The proposed rule does not define what constitutes a 
prepayment penalty, and the Department expects creditors to rely on 
existing state and federal laws, as applicable. QUESTION 16: Comment is 
specifically solicited on this approach.
    232.9, Penalties and remedies:
    This provision incorporates the penalties and enforcement 
provisions contained in the statute. Section 9 provides, among other 
things, that any credit agreement subject to the regulation which fails 
to comply with this regulation is void from inception. It further 
provides that a creditor or assignee who knowingly violates the 
regulation shall be subject to certain criminal penalties.
    The statute, however, does not provide explicitly for enforcement 
of these rules beyond the provisions described above. The Department 
understands that the federal bank, thrift and credit union regulatory 
agencies have authority--derived from federal law unique to federally-
regulated depository institutions--to enforce these rules with respect 
to the institutions that they supervise. However, the Department notes 
that this authority extends to a narrow category of depository 
institu