The Trump administration is
reportedly considering changes to how it enforces the Military Lending Act, a move that could make it easier for payday lenders to prey on servicemembers.
Payday lenders often seek out young servicemembers “in a panic to find financial resources to fulfill their immediate needs (emergency travel, car payments, overdue bills, etc.), or to make an impulse purchase spurred by aggressive push marketing, without fully considering the financial ramifications of taking out a loan that is not predicated on their ability to repay,” according to the Defense Department. Many of the men and women who volunteer to serve in the military enlist immediately after graduating from high school. Understandably, they have limited experience in financial matters, have little to no credit history, and are easy targets.
Since 2011, enforcement of the MLA has provided over $130 million in relief to military families.
But now, according to internal documents shared with NPR and other news outlets, the agency tasked with enforcing the MLA is looking to dial back its monitoring efforts.
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This agency is called the Consumer Financial Protection Bureau, and it's interim head is Mick Mulvaney, who was appointed by President Trump. According to news reports, the agency says it lacks the legal authority to provide proactive oversight of the payday loan industry; as a result, the administration is looking into reducing oversight while continuing to investigate individual complaints of abuse.
Mulvaney says the agency would still intend to ask Congress for the legislative authority to resume proactive enforcement. However, NPR reports, “It is unclear if Congress would do that to spur the CFPB to return to its previous level of enforcement.”
Despite providing some financial training to servicemembers, DoD says “a significant number of servicemembers, especially in the lower ranks of enlisted personnel, still fall victim to easy credit widely available around bases or online. Education does not trump the marketing of these loans and the easy availability of quick cash with few questions asked.”
Weakening oversight of the MLA will have a negative impact on readiness. Unregulated predatory lenders represent a serious danger to national security because a servicemember experiencing debt-related stresses may be less focused on the mission - potentially compromising not only his or her safety, but also that of the entire unit. It can cost servicemembers security clearances, letters of reprimand, loss of promotions, or even separation from the military.
The MLA, originally sponsored by Sen. Bill Nelson (D-Fla.), Sen. Jim Talent (R-Mo.), and Rep. Sam Graves (R-Mo.), provides servicemembers and their dependents with protections from predatory lending practices. Congress tasked the Defense Secretary to survey troops, financial counselors and legal assistance attorneys to determine the impact and prevalence of high-cost loans in the FY 2013 defense bill.
DoD worked with federal regulators to study the issue and developed a number of protections for servicemembers and their families, including:
- A 36 percent cap on the annual interest rate charged for covered credit products -including credit cards - referred to as the Military Annual Percentage Rate.
- Holding creditors responsible for providing military borrowers with additional disclosers, including a statement that they should seek other options than high-cost credit - to include financial counseling and assistance from the Military Aid Societies
- Prohibiting creditors from requiring servicemembers to submit to arbitration or waive their rights under the Servicemember's Civil Relief Act (SCRA)
- Expanding the definition of “consumer credit' covered by the MLA and bringing any closed- or open-end loans within the scope of the regulation, with the exception of loans secured by real estate or a purchase-money loan (including loans to finance the purchase of a vehicle).
The actions of these predators must be regulated, and the federal government must have authority to provide necessary oversight.