Payday Loan Lending for Military Families Becomes Growing Concern for Federal Regulators
Families are gearing up for the rapidly approaching fall and winter holiday season — and the spending they’ll do to prepare. In fact, the consumer holiday spending forecast is at its highest in nearly six years, according to the National Retail Federation.
Americans aren’t only expected to spend more this holiday season, they’re also expected to donate and volunteer more, as the economy continues to show strong signs of improvement and growth. Showing support for military families and veterans has also been a cause that many Americans feel strongly about, especially in light of recent acts of terror.
However, while the holiday seasons are often a bustling, joyous time for many civilian families, military families often face long deployments and even tighter budgets, with some turning to payday loans just to get by. More than half of military service members and their families face financial distress. However, alleged predatory payday loan practices continue to raise government eyebrows and concern.
Over the course of the last three years, the Federal Consumer Financial Protection Bureau’s office of Servicemember Affairs — headed by Holly Petraeus, wife of former CIA director and retired Army General David Petraeus — has dealt with nearly 320 complaints from members of the military, their families, and veterans, of which nearly 150 stem from experiences related to debt collectors using unethical collection practices. Unfortunately, this has become all too common.
Petraeus feels that military service members and their families are easy targets for payday loans, due to their guaranteed, bi-monthly paycheck. In addition, the majority of the military population is young and financially inexperienced. While the Military Lending Act was created in order to address this and provide financial protection for military families and their dependents, the law only applies to payday, auto title, and tax refund anticipation loans. Current loopholes in the law have left hundreds of service members vulnerable, prompting the Obama administration to call for sweeping revisions.
The proposed changes to the law would extend the current 36% interest rate cap on short-terms loans to cover a broader spectrum of other loan products and lines of credit. Lenders were once able to create loan products that fell just out of the Military Lending Act’s reach; however, these would now be covered by the proposed changes if approved.
The changes proposed by the Defense Department, which could go into effect as early as the beginning of next year, would reinforce protections for military personnel and their families by mandating that creditors become more transparent in terms of their loan disclosures, and must notify military members they should explore other options before deciding on costly lines of credit or loans. Also, creditors would no longer be able to require services members to agree to arbitration, a concession that strips borrowers of their right to dispute in court.