The Department of Defense, attempting to thwart the ever-changing tactics of high-cost lenders, plans to dramatically broaden a federal law that sought to protect service members by capping the interest rate on loans made to troops.
When the Military Lending Act was enacted in 2007, it narrowly focused on how much interest lenders could charge on two types of loans: payday and auto-title. But as ProPublica and Marketplace reported last year, high-cost lenders easily circumvented the law, peddling credit from stores that often line the streets near military bases. In a newly released report to Congress, the Defense Department acknowledged that the law has proven inadequate and said it is working on new, “more comprehensive” rules.
The report, completed in April, said a survey of service members found the use of high-cost loans is widespread. Under current rules, the Military Lending Act (MLA) caps certain categories of loans at a 36 percent annual percentage rate. But the Defense Department’s survey found that 11 percent of service members reported taking out a loan above that limit in the past year.
Service members are prime targets for high-cost lenders, the report says. They often aren’t financially savvy—”generally high school graduates who may have started college.” They’re young: 43 percent of service members are 25 years old or younger. And they tend to start families earlier, adding to their financial pressures. From the results of the survey, the Defense Department estimated that up to a quarter of service members “may face emergency financial short-falls and indicate difficulties managing their finances and avoiding problems with credit.”
In response to crackdowns by federal and state regulators, high-cost lenders have been busy transforming their offerings over the past several years. Instead of the typical payday loan, which carries an annual rate above 300 percent and is due in full after two weeks, lenders have increasingly been offering installment loans that last several months. They, too, can have sky-high annual rates, but the rate on installment loans isn’t capped under the MLA. Neither is the rate for open-ended credit: a lender can legally offer a credit line with a 300 percent APR to a soldier.
Because they’re not covered by the MLA, installment lenders are also free to lard loans with nearly useless insurance products that serve mainly to boost the cost of the loan. The report notes that if the MLA were extended to cover installment loans, these types of add-on products would be limited. Under the MLA, the Defense Department has the power to define what sorts of loans are covered.
“[W]ithout revising the definitions of credit in the MLA to encompass installment and open end credit, the MLA will lose its effectiveness,” the report says. But if the DoD simply prohibited installment loans with an APR above 36 percent, lenders might find another type of loan to circumvent the law. Accordingly, the Defense Department concludes, “The complexity of the marketplace appears to be better accommodated with a more comprehensive approach.” As indicated in the report, such an approach would ban any loans above 36 percent, perhaps with a few special exclusions.
Meanwhile, the situation is very different for high-cost loans targeted at everybody else. There is no federal law limiting high-cost loans to civilians, but the Consumer Financial Protection Bureau is working on new rules for payday lenders that will affect all consumers. “I think that the challenges of defining high-cost credit under the MLA are the same challenges of defining high-cost credit for the civilian population,” said Tom Feltner, director of financial services at the Consumer Federation of America.
But where the Defense Department can simply institute a broad 36 percent rate cap, the CFPB’s hands are tied. The 2010 financial reform bill that created the agency forbade it from capping interest rates. That makes CFPB’s job much more of a challenge, said Feltner.
We’re not backing down in the face of Trump’s threats.
As Donald Trump is inaugurated a second time, independent media organizations are faced with urgent mandates: Tell the truth more loudly than ever before. Do that work even as our standard modes of distribution (such as social media platforms) are being manipulated and curtailed by forces of fascist repression and ruthless capitalism. Do that work even as journalism and journalists face targeted attacks, including from the government itself. And do that work in community, never forgetting that we’re not shouting into a faceless void – we’re reaching out to real people amid a life-threatening political climate.
Our task is formidable, and it requires us to ground ourselves in our principles, remind ourselves of our utility, dig in and commit.
As a dizzying number of corporate news organizations – either through need or greed – rush to implement new ways to further monetize their content, and others acquiesce to Trump’s wishes, now is a time for movement media-makers to double down on community-first models.
At Truthout, we are reaffirming our commitments on this front: We won’t run ads or have a paywall because we believe that everyone should have access to information, and that access should exist without barriers and free of distractions from craven corporate interests. We recognize the implications for democracy when information-seekers click a link only to find the article trapped behind a paywall or buried on a page with dozens of invasive ads. The laws of capitalism dictate an unending increase in monetization, and much of the media simply follows those laws. Truthout and many of our peers are dedicating ourselves to following other paths – a commitment which feels vital in a moment when corporations are evermore overtly embedded in government.
Over 80 percent of Truthout‘s funding comes from small individual donations from our community of readers, and the remaining 20 percent comes from a handful of social justice-oriented foundations. Over a third of our total budget is supported by recurring monthly donors, many of whom give because they want to help us keep Truthout barrier-free for everyone.
You can help by giving today. Whether you can make a small monthly donation or a larger gift, Truthout only works with your support.