Tomorrow is Veterans Day, so this is a good time to highlight ongoing action by the Department of Defense that is designed to protect active-duty service members and their families from abusive lending practices.
The DoD has proposed extending restrictions on predatory lending, which traps many service members and their dependents. The proposal would expand the number of lending products covered by the military’s 36 percent interest rate cap, and it would close loopholes that lenders have used to get around the current rate cap.
The proposed rule was published in the Federal Register on Sept. 30. A 60-day comment period ends Nov. 28. (See below how you can help support this rule.)
Colorado has implemented successful payday lending reforms, but the new rule would apply here as well. It would limit the interest and fees that military borrowers could be charged to 36 percent APR. Because loans here have a minimum six-month term, they are currently exempt from the DoD’s 36 percent rate cap. According to data from the attorney general’s office, in 2012, Colorado's payday loans had an average effective rate of 129 percent APR.
The Consumer Financial Protection Bureau strongly supports the DoD’s proposed rules, as do a wide range of consumer groups, including the Center for Responsible Lending, Consumer Federation of America and the National Consumer Law Center.
"As one of the agencies charged with enforcing the Military Lending Act, we have seen firsthand how lenders use loopholes to prey on members of the military," said Richard Cordray, director of the CFPB.
The DoD studied the effects of predatory lending directed at members of the armed forces and found it “undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all-volunteer fighting force.”
That study led to the passage of the bipartisan Military Lending Act in 2006, which protects active-duty service members and their dependents from abusive credit practices and high-interest predatory loans.
Because the loans subject to the military’s 36 percent rate cap were defined narrowly, lenders made minor changes in their products to get around the cap. According to the CFPB, some lenders tweaked their products and continued to sell military families products with annual percentage rates as high as 500 percent.
The new rules will extend the 36 percent rate cap (referred to as the Military Annual Percentage Rate) to many types of credit, including payday loans, that are already subject to protections of the Truth in Lending Act. As a result, the DoD will not have to constantly rewrite the rules as lenders make changes in their products.
To show your support for veterans and this effort to protect them and their families, you can ask your member of Congress to back this rule. Members of the House can sign on to a letter being circulated by Rep. Tammy Duckworth of Illinois that supports the rule. Senators can sign on to a letter being circulated by Sen. Jack Reed of Rhode Island.
Plus you can submit your own comment on the proposed rule by clicking here.
For Veterans Day, let’s show our support for military families by helping ensure that they are protected from predatory loans.