Trump Administration Looks to Weaken Military Payday Lending Protections

Inside Subprime: Aug 11, 2018

By Kerry Reid

In 2007, the Military Lending Act (MLA), an amendment to the 2006 military authorization act, went into effect after a study by the Department of Defense found that 17 percent of military personnel used payday loans. In the words of the DoD report, “Predatory lending undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all-volunteer fighting force.”

Thanks to the MLA, military families have since enjoyed a number of protections against predatory lending practices. These include: a cap on annual percentage rates (APRs) and fees of 36 percent; prohibitions on lenders securing a loan to a military borrower through a personal check, debit authorization, wage allotment, or title to a vehicle (known as title loans); clear written and oral disclosure of all fees and interest rates; and no “rollovers” (or extensions of loans for failure to pay).

As noted by the Center for Responsible Lending, “Congress gave the Department of Defense the authority to define the types of loans covered by the MLA. Final rules exclude credit cards, overdraft loans, military installment loans and all forms of open-end credit from coverage by the MLA. Thus the Act covers traditional payday loans, car title loans and refund anticipation loans [loans made against expected income tax refunds], but does not cover loans with similar costs but varying structures.”

Now, as reported by Glenn Thrush of the New York Times on August 10, the Trump administration is planning to suspend routine examinations of lenders for violations of the MLA.

Mick Mulvaney, the interim director of the Consumer Financial Protection Bureau, which has been tasked with oversight of the law since the passage of the Dodd-Frank Act in 2010, has argued that “proactive oversight” is not laid out in the legislation.

The CFPB under President Obama conducted “dozens of investigations into payday and other lenders,” according to Thrush’s article, without encountering legal opposition. It has returned more than $130 million in service members, veterans and their families from action taken against lenders in violation of the MLA. The agency also reports that they receive more than 72,000 complaints a year.

Thrush’s article notes that in 2014, the bureau discovered abuses through supervisory examinations of payday loan providers and fined one Texas-based lender $10 million for steering low-income borrowers, including military members, into taking out high-interest loans.

The proposed change comes as a Senate subcommittee moves toward voting on the nomination of Mulvaney’s replacement, Kathleen Kraninger, who has previously served in the Office of Management and Budget.

The CFPB will still bring individual cases against lenders who violate the 36 percent cap. But they will rely on borrowers making complaints through its website and hotline.  According to John Czwartacki, a spokesman for Mulvaney, the interim director is interested in having Congress pass legislation that would explicitly grant the power to conduct supervisory examinations to the CFPB.

However, the banking and payday industries have been fighting to chip away protections for years. As noted in Thrush’s article, in June of 2017, the Consumer Bankers Association (a trade association representing banks) sent the DoD a list of “changes to the law that would benefit its membership,” as Thrush wrote.

Predatory lending aimed at military families was one of the reasons that North Carolina passed legislation back in 2001 banning payday loans – the first state in the country to do so. Home to Fort Bragg – the largest military base in the nation – as well as Marine Corps base Camp Lejeune, the state was an attractive target for predatory lenders. Senator Jack Reed (D-Rhode Island), who served as a member of the 82nd Airborne Division at Fort Bragg in the 1970s, was quoted in Thrush’s article attacking the banking industry’s desire to loosen some of the restrictions. “It’s basically about greed. The industry has been pushing for this because they want to make more than 36 percent,” said Reed

If someone in the military believes that their rights under the MLA have been violated, there are other places to turn in addition to filing complaints with the CFPB. The National Military Family Association notes that military families facing unexpected financial emergencies can reach out to relief societies that are set up across all branches. These include the Army Emergency Relief, the Navy-Marine Corps Relief Society, the Air Force Aid Society and Coast Guard Mutual Assistance. All offer interest-free loans and grants. They further note that military families who are facing financial difficulties can take advantage of financial counseling through MilitaryOneSource.

Read more about Payday and Title Loans in our Subprime Reports.

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