Congress May Delay Predatory Lending Protection For Military Personnel

The Military Lending Act prevents military personnel from being caught in revolving debt traps of triple-digit interest loans from predatory financing operations like payday and auto-title lenders, but there are loopholes that allow some lenders to get around the MLA’s 36% APR interest rate cap, resulting in the loss of millions of dollars to servicemembers each year and raising issues of national security. The Dept. of Defense is currently working toward new rules that would add protections for military personnel, but Congress may intervene to slow the DoD from making progress.

Today, the House Armed Services Committee is marking up and voting on the 2016 National Defense Authorization Act [PDF], a very large bill that includes a small provision (Sec. 594) which would require the Sec. of Defense to submit a report to Congress by March 1, 2016 on any new MLA-related rules. That’s all well and good, but the real catch comes here:

“Additionally, the Secretary of Defense may not implement any final regulation concerning [the Military Lending Act] until the end of a 60 day period beginning when the required report is submitted to the Committees on Armed Services of the Senate and the House of Representatives.”

This would have the effect of pushing any new rules off until at least May 2016, a full year from now, meaning that servicemembers will lose millions more dollars to lenders and other companies. For example, the Virginia-based retailer that “finances” purchases by military personnel through monthly installments without making it clear that the sticker prices on these products are already marked up and that the customer will end up spending several times the actual price; like the servicemember who ended up paying $8,626 for a $650 laptop.

Credit cards and deposit advance loans are also not currently limited by the MLA. And according to the Consumer Financial Protection Bureau, nearly 1-in-4 servicemembers will take out a deposit advance loan — often with an APR of around 300% — each year, paying millions in fees.

This isn’t just about doing something nice to protect the people that protect us. Allowing active-duty military members to risk these levels of debt is a matter of national security.

“When servicemembers default on loans, bad credit reports result in security clearances being revoked,” explains Ed Mierzwinski of the U.S. Public Interest Research Group. “The Pentagon found that the problem was big enough to harm unit preparedness since significant numbers of servicemembers were being prevented from deployment on ships or overseas, which generally requires a security clearance. The Pentagon also found that unit morale suffered from the harsh effects of predatory lending.”

Advocacy group Public Citizen says the attempt to delay the reforms is “unconscionable” and that it is a “sign of just how indebted certain members of Congress are to corporate interests that a critical, commonsense regulation that is needed to protect our national security can be sacrificed in service to the predatory lending industry.”

Committee member and veteran, Rep Tammy Duckworth of Illinois is expected to offer an amendment to the Authorization Act that would strike Sec. 594 from the bill, though it remains to be seen if she will get enough support from her fellow committee members to make this change.

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