Advocates Urge Pentagon to Preserve Integrity of Military Lending Act

Banks want to be exempted from a new federal law protecting military families from predatory lending, but military and consumer advocates are asking the Pentagon to deny such an exemption and protect borrowers from any usurious lending, no matter who is making the loans.

A measure protecting troops from predatory lenders was passed by Congress last fall as an amendment to the Defense Authorization bill, and the Pentagon is writing rules for its implementation in October. But the American Bankers Association and America’s Community Bankers have asked the Pentagon to exempt banks from the Military Lending Act’s central measure, an annual interest rate limit of 36 percent for consumer loans to military families.

“Let’s not undercut the intent of the law and end up protecting predatory lenders rather than military member and their families,” said Col. Michael F. Hayden, Deputy Director of Government Relations with the Military Officers Association of America. “The 36-percent cap on interest rates leaves plenty of room for banks and credit unions to do business responsibly. We should expect their full support for this protection.”

A comment from The Military Coalition filed with the Department of Defense on February 5 asks that the 36-percent cap be applied across the board, including all fees and applying to “all lenders and lending institutions.” The letter is signed by representatives of 33 military advocacy groups.

And a coalition including the National Consumer Law Center, Consumer Federation of America, Center for Responsible Lending, Consumers Union, and National Association of Consumer Advocates also filed comments with the Pentagon yesterday. They said carving out exemptions for banks and credit unions, requiring service members to request protections before they would apply, and allowing loopholes for fees to be counted outside the 36-percent cap would undermine the intent of the Act.

“Our troops should not have to worry about whether they are working with the right lender, or whether they’re going to be charged hidden fees,” said Lauren Saunders, managing attorney with the National Consumer Law Center. “There is no excuse for charging military families outrageous interest on loans they have taken just to get by. These protections must be meaningful and comprehensive.”

Payday and car title lenders are the most obvious financial predators, targeting military by clustering around bases. They typically charge interest rates in the 400-percent range, and trap borrowers long-term in loans that, in the case of payday lending, the borrowers intended to take for only a couple of weeks. Car title loans require the borrower to put up title to their vehicle, which they lose if they can’t keep up with the steep rates.

But abuses by banks are not unheard of either, said the consumer groups in their filed comments. Banks have charged 350 percent and higher on internet payday and installment loans. They have charged up to 521 percent for direct deposit account advances. And they have marketed credit cards with a $250 limit, and $175 in fees on the first statement before any purchase has been made.

“A uniform 36-percent cap would level the playing field for all lenders,” said Kathleen Keest, senior policy counsel for the Center for Responsible Lending. “I would think the banks would be just as interested in protecting our troops from abuse as anyone. They should have no problem with this cap.”