Under DoD's rules, a 36 percent interest rate cap established by law applies only to payday, vehicle title and refund anticipation loans. (Mike Morones / Staff)
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Consumer advocates and state legal officials are welcoming the Pentagon’s announcement that it is considering an expansion of protections for troops and families against predatory lenders.
Attorneys general from 13 states weighed in on the issue within a week of the Defense Department’s June 17 announcement in the Federal Register.
“As the chief consumer protectors in each of our states, we encourage the department to implement more robust protections of our nation’s service members against the proliferation of predatory consumer lending practices,” stated a June 24 letter signed by all 13 attorneys general.
Comments are due by Aug. 1 on whether DoD should revise its regulations, and if so, how.
In a report accompanying the fiscal 2013 Defense Authorization Act, lawmakers voiced concern about evolving predatory lending practices targeting troops and their families.
They said DoD should review its rules for implementing the law that protects troops and families from these practices and called for surveys of counselors, legal assistance attorneys and troops, as well as consultation with consumer protection advocacy groups and representatives of the financial services industry.
The 2006 Military Lending Act 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 in implementing the law, DoD narrowed the definition of the loans covered, limiting the 36 percent rate cap to payday loans, vehicle title loans and refund anticipation loans. In addition, only payday loans with terms of 91 days or less and totaling no more than $2,000 are covered, and only vehicle title loans with terms of 181 days or less are covered.
The narrow categories and definitions created loopholes, the attorneys general said. “For example, by requiring that payday loans be for a minimum of $2,001 or have a minimum repayment period of 92 days, a lender can avoid” the law’s 36 percent interest cap.
Consumer advocates say DoD’s implementing rules are outdated and haven’t kept pace with the changing financial market.
“Lenders have changed, products have changed,” said Tom Feltner, director of financial services for the Consumer Federation of America. “We’re seeing longer terms, or larger loans,” he said. “We still see triple-digit interest rate loans in the marketplace.”
While DoD’s 2007 implementing rules were a “step forward at that time, much more can be done” to protect troops from abusive lending practices, wrote the attorneys general of California, Delaware, Florida, Illinois, Indiana, Kentucky, Montana, New York, Nevada, North Carolina, Oregon, Tennessee and Washington.
For example, they said, new rules should ensure that payday loans and vehicle title loans given to service members are subject to the law’s 36 percent cap on interest rates, regardless of the loan’s amount, structure or duration.
Comments can be submitted to the Federal eRulemaking Portal: www.regulations.gov or by mail to Federal Docket Management System Office, 4800 Mark Center Drive, East Tower, Suite 02G09, Alexandria, VA 22350-3100.