EANGUS will be on this call
2:30PM EDT TODAY: White House Outreach Call on Military Lending Act
WASHINGTON, DC – Today, Tuesday, July 21, at 2:30PM EDT, Administration Officials will host an outreach call to further discuss the President’s announcement that the Department of Defense (DOD) today published final Military Lending Act rules closing harmful loopholes to better protect our troops and their families from predatory lending.
Background
Legislation was originally passed in 2006
By GORDON LUBOLD
July 21, 2015 6:00 a.m. ET
http://www.wsj.com/articles/u-s-to-expand-military-lending-act-in-effort-to-protect-service-members-1437472801
WASHINGTON—President Barack Obama is expected to announce Tuesday a significant expansion of regulations that protect U.S. military service members and their families from predatory lending practices, making it harder for financial firms to charge high interest rates under current laws.
In announcing the implementation of regulations under the Military Lending Act, which was first passed in 2006, Mr. Obama is aiming at loopholes that have allowed some financial institutions to charge interest rates in the triple digits, forcing service members and their families deeper into debt. Mr. Obama will speak at a Veterans of Foreign Wars convention in Pittsburgh on Tuesday, where he is expected to address an array of issues facing veterans, including the shooting deaths of five service members last week in Chattanooga, Tenn.
The change to the military lending law redefines the kinds of loans and loan products that fall under the existing law, which caps the interest service members and their families pay on such loans at a 36% effective rate. That is far lower than the effective rates some paid for short-term, small loans—such as for vehicles or to cover expenses between paychecks—that can cost service members thousands of dollars in interest.
The changes essentially expand the kinds of credit products that now must comply with a 36% cap. Previously, creditors would skirt that cap by offering military consumers products like rolling lines of credit that didn’t fall under the law, allowing them to charge excessive rates. Now, all such credit products will be capped at 36%. The change also aligns the definition of “consumer credit” with the federal Truth in Lending Act, maintains the 36% cap and prohibits creditors from requiring service members to submit to mandatory arbitration and onerous legal proceedings.
The Military Lending Act falls under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the controversial bill passed five years ago, which administration officials said provides Americans with a wide range of consumer protections.
Payday lenders prey on service members and their families at twice the rate that they use to target civilians, U.S. officials said.
Holly Petraeus, assistant director of the Consumer Financial Protection Bureau, which has advocated on behalf of military families, quoted one independent report that concluded that such lenders crowd around military bases “like bears in a trout stream.”
She said such lending practices hurt military readiness, distract service members and in some cases force some service members with dire financial problems out of the military altogether.
“If they’re charging outrageous rates, it’s hurting service members and their families, and, by extension, the nation’s defense,” said Ms. Petraeus in a conference call Monday evening with reporters.
The original Military Lending Act was created to address the issue, and set the 36% interest cap. But lending institutions quickly found that there were ways around the law by offering lines of credit or other loan products that skirted the legislation. For example, if a loan exceeded $2,000 or if the term was more than 91 days, those loans didn’t fall under the lending law.
“The universal opinion was, it needs to cover more,” one defense official said of the original law.
Pentagon officials say they aren’t able to track how many individuals have been affected by payday lenders. Anecdotal data suggests that some service members paid as much as 600% to 700% for the life of their loans, or even four times the amount of the original loan, a senior defense official said. Such financial institutions typically target enlisted military personnel, who often require short-term loans for small amounts of money to cover car payments, to obtain advances on tax refunds or other kinds of loans.
In 2013, 41% of enlisted personnel had obtained some kind of credit, Pentagon officials said. About 11% of enlisted personnel in the active duty military have obtained payday loans, which include vehicle title loans, pawnshop loans and other high-interest loans, they said. During fiscal year 2012, service members received 1.8 million counseling sessions, and in that same year, about 162,000 received “extended counselings,” according to defense officials.