Nearly one-fourth of the nation’s senators have signed a letter urging defense officials to broaden protections against deceptive and predatory lenders for service members and their families.
The letter was in response to the Defense Department’s announcement that it is considering revising its implementing regulations on the 2007 Military Lending Act.
By enacting that law, “Congress sent a clear message that such protection was of paramount importance to the financial security and military readiness of our service members,” stated the Aug. 1 letter signed by 23 senators, all Democrats.
The law was broad: It set an annual interest rate cap of 36 percent on loans made to troops and their families, and prohibited securing loans with checks, electronic access to bank accounts, vehicle titles or allotments. Only mortgage loans and auto finance loans were excluded.
But DoD’s implementing regulations limited the interest rate cap to three specific products: closed-end payday loans of $2,000 or less and repayable in 91 days or less; closed-end vehicle title loans repayable in 181 days or less; and closed-end tax refund anticipation loans.
Those regulations “unfortunately ... contained gaps in the definition of consumer credit, which over the years, have been taken advantage of by certain lenders,” the senators wrote.
“Due to the narrow definition of consumer credit, certain lenders are offering predatory loan products to service members at exorbitant triple-digit effective interest rates and loan products that do not include the additional protections envisioned by the law.”
Consumer advocates have expressed concern that DoD’s implementing rules are outdated and have not kept pace with the changing financial market. For example, some online lenders have increased their loan amounts or instituted longer terms so that they can charge more than 36 percent interest — in some cases, triple-digit interest rates.
“Given the many sacrifices military families make, it is deeply disturbing that predatory lenders would target them with exploitive financial schemes,” said Sen. Mazie K. Hirono, D-Hawaii, in a statement announcing the letter. Hirono is a member of the Senate Armed Services Committee.
Sen. Kirsten Gillibrand, D-N.Y., chairwoman of the Senate Armed Services Committee’s personnel panel, was also among those who signed, as well as four other members of that committee and five members of the Senate Banking, Housing and Urban Affairs Committee. Sen. Jack Reed, D-R.I., is a member of both committees.
The senators noted that DoD has the authority and flexibility to replace the narrow definitions so that the 36-percent rate cap would apply to other types of loans.
They urged DoD to consider changing the definition of consumer credit in its regulations to make sure it is broad enough to protect service members “from all forms of deceptive, abusive and/or high-cost credit, regardless of the duration or structure of the loan.”
“The Department of Defense has the opportunity to expand the law’s protections to address forms of evolving abusive credit not envisioned when it was passed.”