WASHINGTON — House Republicans are pushing legislation to block predatory lending protections for American soldiers, under pressure from the banking lobby.
GOP lawmakers tucked the deregulation item into the National Defense Authorization Act — a major bill setting the military’s funding, along with a number of other controversial terms on Guantanamo Bay and other issues. If the banking item is enacted, it would impose a one-year delay on new Department of Defense rules meant to shield military families from abusive terms on payday loans and other forms of high-interest credit. The bill is being considered Wednesday before the House Armed Services Committee.
The military has been struggling with the financial impact of predatory lending on service members for years. A 2014 report issued by the Consumer Financial Protection Bureau documents a host of abuses targeting troops. One family that took out a $2,600 loan ended up paying back $3,966.84 over the course of a year. Another borrower spent $1,428.28 to pay off a $485 loan in just six months. Thousands of service members receive short-term, high-interest loans each year.
In 2006, Congress passed legislation imposing a 36 percent cap on interest rates for payday loans, auto title loans and tax refund anticipation loans to military families. Lenders responded by slightly tweaking the terms of their loans to avoid the limits. Since the law applied to payday loans with terms of 91 days or less, and amounts of $2,000 or less, credit companies were able to shirk the rules with 92-day loans, or loans of $2,001.
Big banks were even more creative, issuing “deposit advance products” — functionally almost identical to payday loans, but with a different name and with effective annual interest rates of around 300 percent. Congress responded to these tricks in 2012 by passing another law directing the Pentagon to fix these loopholes, and new rules were finalized in September of last year.
The rules are strongly supported by consumer groups, including the Consumer Federation of America, Public Citizen and the U.S. Public Interest Research Group. Wednesday’s GOP bill would delay those rules for a year, ostensibly to allow for a new study to examine the effects of the rules. The CFPB has already performed two such studies.