The Department of Defense is trying to do something good for servicemembers by closing loopholes in the Military Lending Act that can leave military personnel vulnerable to predatory lenders. But these safeguards are now the target of a Congressman who has received substantial campaign contributions from payday lenders.
Just two weeks after the House Armed Services Committee narrowly voted to remove controversial language from the annual defense authorization bill that would have delayed the rules, the House of Representatives is set to consider a new amendment [PDF] that would block finalization of the DoD’s new rules.
The amendment to the National 2016 National Defense Authorization Act was introduced by Ohio Rep. Steve Stivers and aims to delay the new protections until a host of technical certifications can be made for a database of active-duty military members.
According to OpenSecrets, Rep. Stivers received $42,500 in campaign contributions from payday lenders during the 2014 election cycle. This was the third-highest amount of all recipients for that year.
Unlike the previously struck down provision – which delayed the rule implementation one year – Stivers’ measure doesn’t give a clear timeline for how long work related to the database would take.
Robert Weissman, president of advocacy group Public Citizen, called the new attempt to delay the DoD’s protections “unconscionable.”
“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 military families can be sacrificed in service to the predatory lending industry,” he says in a statement. “The Defense Department bent over backwards in the proposed rule to make sure that predatory lenders are protected from legal liability if they verify that they are lending to a service member, rather than a non-service member, by relying on a database created by the Defense Department.”
White House spokesman Josh Earnest told the Military Times that, “It’s almost too difficult to believe that you’d have a member of Congress looking to carry water for the payday loan industry, and allow them to continue to target in a predatory fashion military families who in many cases are already in a vulnerable financial state.”
Earnest told the Times that he doesn’t see Stivers’s amendment “earning the majority support in the United States Congress.”
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 gaps 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.
Back in September, the DoD proposed changes to the MLA that aim to reduce predatory lending practices, expand protections provided to servicemembers, close loopholes and help ensure military families receive proper protections.
The proposed rules include implementing a cap of 36% on the annual percentage rate of interest charged for credit products, which is estimated to cover nearly 40,000 creditors – most involving credit cards, deposit advance loans, installment loans and unsecured open-end lines of credit.
Creditors would also be required to provide military borrowers with additional disclosures, including a statement that the service member should seek other options than high-cost credit.
Additionally, creditors would be prohibited from requiring service members to submit to arbitration, waive their rights under the services members’ Civil Relief Act, or impose onerous legal notice requirements as a result of taking out a loan.
As U.S. Public Interest Research Group consumer program director Ed Mierzwinski previously explained, delaying the new protections and allowing such high levels of debt against military personnel isn’t just a matter of protecting those who protect us, it could also be a national security risk.
“When servicemembers default on loans, bad credit reports result in security clearances being revoked,” he said. “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.”
