Washington, DC—(ENEWSPF)—November 13, 2014. Today, Congresswoman Tammy Duckworth (IL-8) sent a letter to Secretary Hagel supporting a Department of Defense proposed rule that would protect members of the military from predatory lending. The bipartisan letter was signed by 64 of Duckworth’s colleagues. Current protections under the Military Lending Act apply to only three narrowly defined types of products: closed-end payday loans of $2,000 or less and repayable in 91 days or less; closed-end vehicle title loans repayable in 181 days or less; and tax refund loans. Unfortunately lenders quickly found the loopholes in the regulation and escaped accountability by offering loans with terms that were a day longer, or a dollar greater than loans covered by the rules. Bad actors continued to charge triple digit interest rates and to exploit the men and women who put their lives on the line to protect our country.
In September, the Department of Defense proposed a rule to extend Military Lending Act protections to all forms of credit targeting members of the military and to abusive open-end credit products. Last year, Duckworth sent a letter to the Department of Defense asking for these changes.
“When service members take on high-cost debt with abusive terms, they are forced to make difficult choices between paying off a loan with rates averaging as high as 392%, forgoing other necessities, such as utilities or grocery bills, or taking out additional loans,” said Duckworth. “This accumulation of debt is factored into eligibility for security clearance and advancement, putting their jobs at risk.”
“The proposed rules are clear and comprehensive and will protect against debt traps that undermine the financial security of service members and their families. They provide welcome relief for struggling military families.”
In October, Duckworth wrote an Op-ed for the Military Times emphasizing the importance of protecting members of the military from predatory lending.
The text of the letter is below:The Honorable Charles Timothy Hagel Secretary of Defense U.S. Department of Defense 1000 Defense Pentagon Washington, DC 20301-3010
Dear Mr. Secretary:
We are writing to express our support for the recent Department of Defense proposed rule to protect service members from payday lenders, auto title lenders and other abusive lenders. Last year 54 Members of Congress wrote to you asking that you close loopholes in regulation that allowed predatory lending practices to continue harming our military members and their families. We appreciate your attention to our concerns and commend you for taking action to address them.
When service members take on high-cost debt with abusive terms, they are forced to make difficult choices between paying off a loan with rates averaging as high as 392%, forgoing other necessities, such as utilities or grocery bills, or taking out additional loans. This accumulation of debt is factored into eligibility for security clearance and advancement, putting their jobs at risk.
To address these concerns, Congress adopted, and the Department of Defense implemented, the Military Lending Act in 2007. The act was designed to put in place strong rules for lenders that do business with members of the military, including a 36 percent cap on interest and fees. The MLA also prohibits other harmful practices such as securing loans with vehicle titles, post-dated checks or direct access to borrowers’ bank accounts.
However, current protections apply to only three narrowly defined types of products: closed-end payday loans of $2,000 or less and repayable in 91 days or less; closed-end vehicle title loans repayable in 181 days or less; and tax refund loans. Unfortunately, lenders have been quick to exploit loopholes in these narrow definitions. The Department of Defense’s recent report found that 11 percent of enlisted service members took out loans with interest rates over 36 percent over the past year as a result of the MLA loopholes.
We strongly urge the Department of Defense to adopt the proposed rule to expand these narrow definitions of consumer credit and ensure that the Military Lending Act protects service members from unsustainable and abusive credit by:
· Extending Military Lending Act protections, including the 36 percent interest and fee cap and other protections, to all forms of credit targeting members of the military;
· Protecting service members from abusive open-end credit products while ensuring access to credit cards with reasonable rates and fees;
· Ensuring that military relief societies, which provided more than $140 million in low-cost emergency loans in 2012, can continue to lend.
The proposed rule provides the inclusive definition of consumer credit necessary to ensure that all service members are covered by the consumer protections envisioned by Congress in 2007 and will help preserve our force’s readiness.
Thank you for your time and consideration of this important matter. We look forward to receiving your response.