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Monday, September 29, 2014

Pentagon to Tighten Loan Rules for Service Members

The Defense Department is proposing tightening restrictions on lending to service members. The DoD said that current restrictions in the Military Lending Act — principally targeting tax refund anticipation loans, payday loans and car title loans — leave too many loopholes, although ABA and other banking trade groups have warned that the DoD’s approach could increase costs and limit choices for service members and their families.

The proposed rule would extend the terms of the MLA to all types of credit that is subject to the Truth in Lending Act, with particular implications for credit cards, lines of credit, installment loans and deposit advances offered to service members. The rule would not cover home mortgages and money purchase loans for cars.

The DoD proposed allowing creditors to exclude “bona fide fees that are reasonable and customary” from the MLA’s 36% APR cap. It also proposed to allow creditors to verify a loan applicant’s military status through the DoD’s online database, rather than relying on the borrower’s representation.

In response to the proposal to amend the Military Lending Act, CFPB Director Richard Cordray said that it strongly supports the DoD’s efforts to protect military families. Director Cordray continued:

As one of the agencies charged with enforcing the Military Lending Act, we have seen firsthand how lenders use loopholes in the rule to prey on members of the military…This proposal would shut down the predatory lending to the military that has flourished through exploiting legal technicalities. By broadening the types of credit covered under the law, this proposal would carry out the will of Congress by enabling the CFPB to stop lenders from harming servicemembers in ways the law was intended to stop.

ABA EVP Wayne Abernathy said:

When it comes to providing financial services to the military, the banking industry’s record is a strong and positive one. We have worked with DoD over the past decade to ensure that implementing the MLA does not put military families at a disadvantage or harm their ability to access financial services provided by banks.

ABA will evaluate and comment on the proposed rule. Comments are due by Nov. 28.

Read the proposed rule.
Read the CFPB’s statement.
Read ABA’s previous comments.

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