Effective October 1, 2007 new regulations regarding extension of credit to active duty military personnel and their dependents become effective. The changes in the law are the result of enactment of Section 670 of the John Warner Defense Authorization Act for Fiscal Year 2007 and its implementing regulations published by the Department of Defense in the Federal Register on August 31, 2007 and codified as 32 CFR 232.

Some of the major provisions of the new law are:

Covered Borrowers include only active duty military personnel and their dependents.

Covered Creditors include the original creditor and any subsequent assignee.

Applies only to close end Payday Loans, Vehicle Title Loans and Tax Refund Anticipation Loans.

Establishes an interest rate ceiling of 36% as well as what fees and charges must be included in the interest rate calcualtion.

Requires new mandatory loan disclosures in addition to the disclosures presently required by Regulation Z.

Creates an affirmative duty on the lender to determine if the potential borrower is an active duty member of the military. Provides optional safe harbor language to meet this obligation.

Prohibits the use of arbitration clauses or any language which would require the borrower to waive and legal recourse available; to accept unreasonable notice provisions; or to provide the creditor access by check or other method to any account of the borrower as a condition of approving the loan.

Requires that any loan agreement that fails to comply with the regulation is considered void from its inception.

Provides that any creditor or assignee that knowingly violates the regulation shall be subjcet to criminal penalties.