Update, Thursday 4/30: Predatory lenders defeated, troops protected, for now!
Here's Representative Duckworth's release on her bi-partisan 32-30 victory in protecting the Military Lending Act at 4:30 AM this morning. As we note in our own release: "We expect further attacks on the Department of Defense's important new rules, on the House floor and in the Senate, but are prepared to stand alongside Rep. Duckworth and Senator Jack Reed (RI) and others who are working to "protect our troops," while others who may often say "support our troops" are working against them."
Original Post 4/29: On Wednesday, April 29, the House Armed Services Committee will vote on the 2016 National Defense Authorization Act, HR 1735. Unfortunately, predatory lenders have convinced its personnel subcommittee to add a provision, Section 594, that will delay needed Pentagon regulations improving the Military Lending Act for at least one year, while a redundant, unnecessary study is carried out. The Army Times has more.
Rep. Tammy Duckworth (IL), a veteran, and member of the full committee, is expected to offer an amendment to strike the onerous provision, which threatens unit preparedness, unit morale and the well-being of the nation's defenders themselves.
Last year, the Department of Defense proposed needed improvements to the 2007 Military Lending Act, in response to growing concerns that payday and other high-cost lenders were making loans to servicemembers at 400 percent APR or more, by exploiting loopholes to evade the law's 36 percent APR cap. The Pentagon argued that the loopholes posed ongoing harms to both military families and unit preparedness. Why unit preparedness? When servicemembers default on loans, bad credit reports result in 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. The Pentagon also found that unit morale suffered from the harsh effects of predatory lending.
The bi-partisan Military Lending Act of 2007 passed after two major efforts. First, for years the Pentagon had allowed active-duty military commanders at bases around the country to join military assistance organizations, faith, civil rights and consumer leaders in supporting state action to rein in high-cost lending. As one Marine general told a San Diego community group in 2006:
"With our Navy partners we are going after Pay Day Lenders. Pay Day Lenders are the parasites found outside of our military bases in Southern California who prey on young Marines and Sailors because the lenders know they are uninformed consumers." --Maj. Gen. Mike Lehnert, commander of Marine Corps Bases (West).
Then, a comprehensive Pentagon predatory lending study confirmed the need for federal action. The 2007 Military Lending Act capped payday and other loan rates to military families at 36 percent APR. But lenders re-designed their loans to evade the caps. Predatory lending continued. In 2014, the Department of Defense proposed a comprehensive new rule designed to capture all forms of predatory lending and ban certain practices, such as pre-dispute arbitration clauses, in loans to servicemembers.
In testimony to the Senate Veterans' Affairs Committee in 2013, Colonel Paul Kantwill, Director of Legal Policy, Office of the Undersecretary for Personnel and Readiness, Department of Defense, stated:
I will discuss other financial challenges confronting Servicemembers, veterans, and their families in today's consumer marketplace. These challenges are many and varied, but I will focus primarily on issues and challenges that fall within or around the Military Lending Act (MLA)--small dollar, payday-type lending services and products -- as the Department sees this as the biggest, current financial challenge facing our Servicemembers, Veterans, and their families.
Following that testimony, the Pentagon issued a 2014 report calling for changes to the Military Lending Act. That report found the following:
Losing qualified Service members due to personal issues, such as financial instability, causes loss of mission capability and drives significant replacement costs. [...] Additionally, financial concerns detract from mission focus and often times require attention from commanding officers and senior NCOs to resolve outstanding debts and other credit issues.
Subsequently, the Department of Defense, led by then-Secretary Chuck Hagel, proposed comprehensive changes to the MLA's implementing regulation designed to protect servicemembers and unit preparedness. This Americans for Financial Reform webpage includes a variety of materials supporting the changes, as well as a link to the proposed rule and a summary of the rule. Here is a recent statement on the need for an improved Military Lending Act rule from the Consumer Financial Protection Bureau.
Predatory lenders first laid siege to our military bases, surrounding them with flashy storefronts targeting young soldiers and their families for high-cost loans, including payday, auto title and other high-cost loans. Congress acted, but more needs to be done. Now, the lenders have surrounded the Congress with their siege towers (likely tossing campaign cash instead of missiles from their trebuchets), asking it to delay additional protections against their unfair practices while needless, redundant studies are prepared. Only in Washington would some politicians even consider a calculus that places the demands of special interests above the compelling needs of both the nation's military preparedness and the well-being of the nation's defenders themselves.