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Lawmakers call on DoD to further protect service members from abusive practices

u.s. congressSen. Mazie K. Hirono (D-Hawaii) joined a number of other lawmakers last week in urging the Pentagon to make changes to military lending rules in order to protect service members and their families from predatory and deceptive lending practices.

The Military Lending Act of 2007 capped the annual interest rates on consumer credit for service members, while allowing the Department of Defense to write rules intended to protect service members from certain abusive and predatory products and practices.

The definition of “consumer credit” initially approved by the DoD, however, did not include high interest products such as non-traditional payday loans, car title loans, installment loans and overdraft loans.

In a letter to Defense Secretary Chuck Hagel, Hirono and other lawmakers called on the department to eliminate a loophole in lending protections that leaves service members and their families vulnerable to abusive lending practices.

“Unfortunately, the rules initially promulgated by the Department contained gaps in the definition of consumer credit, which over the years, have been taken advantage of by certain lenders,” the lawmakers said in the letter. “Due to the narrow definition of consumer credit, certain lenders are offering predatory loan products to service members at exorbitant triple digit effective interest rates and loan products that do not include the additional protections envisioned by the law. As such, a wide range of credit that is structured as open-ended versus closed-ended or that otherwise is structured to evade the limitations set forth in the current regulations fall completely outside the law’s intended prohibitions…In its rulemaking, we urge the Department to consider modifying the definition of consumer credit to ensure that it is broad enough to protect service members from all forms of deceptive, abusive and/or high-cost credit, regardless of the duration or structure of the loan.”

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