House Panel Strikes Provision That Would Delay Added Military Lending Act Protections

Yesterday we reported that Congress would make a decision whether or not it would intervene to slow the Department of Defense’s work to create new rules aimed at closing loopholes in the Military Lending Act that often leave military personnel vulnerable to predatory financial operations. Thankfully, legislators saw the need for more protections regarding military lending and determined the rules could go into effect as planned.

According to the Military Times, Congress narrowly voted to remove controversial language that would have delayed the rules from the annual defense authorization bill.

The 32-30 vote in the House Armed Services Committee concerned a small provision (Sec. 594) in the 2016 National Defense Authorization Act [PDF], that would require the Sec. of Defense to submit a report to Congress by March 1, 2016 on any new MLA-related rules.

While the crux of the Act is good, the passage that many consumer groups feared would be the undoing of the Military Lending Act read:

“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.”

That small clause would have pushed any new rules from the DoD off until at least May 2016, leaving servicememebers vulnerable to losing millions of dollars to unscrupulous lenders and other companies.

The Military Lending Act, as it stands, 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. However, there are loopholes in the Act 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.

Examples of companies and products taking advantage of the loopholes in the current MLA include retailers that provide financing for servicemembers’ purchases of electronics and other goods, without clearly stating the cost of the financing to the buyer.

One such case made headlines last July, when a Virginia-based company that marketed always-approved credit offers to members of the military with bad credit or no credit history was found to have charged customers several times the price of products thanks in part to exorbitant markups and finance charges. In one case, a servicemember ended up paying $8,626 for a $650 laptop.

Other financial products currently not covered by the MLA are credit cards and deposit advance loans. 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.

The DoD’s new rules would expand the MLA Act to cover these products and financiers, reaching nearly 40,000 creditors, most involving credit cards, deposit advance loans, installment loans and unsecured open-end lines of credit, the Military Times reports.

In addition to hurting the financial standing of servicemembers, U.S. Public Interest Research Group consumer program director Ed Mierzwinski explained yesterday that allowing allowing such high levels of debt against military personnel could be a national security risk, because the issues have been found to lead to security clearances being revoked.

“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,” he said. “The Pentagon also found that unit morale suffered from the harsh effects of predatory lending.”

Following the close House Panel vote, Mierzwinski called the striking of the delay passage “a critical victory for servicemembers, veterans and their families, although the fight to protect our troops from high-cost loans will continue.”

Advocacy group Public Citizen said in a statement that the push to delay the protection from taking effect illustrated “the horrendous abuses prevalent in underregulated markets, where corporations routinely target vulnerable populations. It demonstrates how smart regulations are needed and can make a huge difference in people’s lives.”

The final vote on the proposal came in the early hours of Thursday after more than 18 hours of debate. There’s still a possibility that the delay clause could be reintroduced when the bill reaches the full House next month.

Panel votes to dump delay in military lending rules [The Military Times]