In 2006, Republicans and Democrats in Congress set aside partisanship to adopt a law that protects active-duty service members and their families from predatory loans. Lawmakers passed the Military Lending Act after learning that payday lenders making triple-digit interest rate loans were trapping service members by clustering around the gates of our nation’s military installations. While the law does not solve every consumer challenge facing service members, it addresses some of the very worst abuses by imposing a traditional 36 percent interest rate cap on loans to active-duty service members and their families.
The Department of Defense agreed with Congress and has done its part by issuing regulations in 2007 to implement the law. Then, DoD strengthened and expanded those regulations in 2015 to close loopholes used by unscrupulous lenders to circumvent congressional intent. We served as attorneys in the office DoD tasked with implementing the Military Lending Act, and spent many years fighting to preserve and enhance these critical protections for our military families.
The MLA has made a difference for military families. The number of payday loan companies targeting military families around bases has dropped off. And lenders are prohibited from upselling service members on sketchy, over-priced “add-ons” to credit cards and many other forms of credit. These strong consumer protections continue to make sense because they help to prevent unnecessary service member separations due to financial hardship and instability.
Unfortunately, storm clouds may be on the horizon for military consumer protection. In the past year, the Consumer Financial Protection Bureau has reversed course by refusing to conduct preventative audits critical in enforcing the law. The CFPB is the federal government’s primary civilian agency tasked with protecting consumers as well as enforcing the Military Lending Act.
And, armed with bogus statistics, some auto dealers have been lobbying for a new loophole that would allow them to jack up price of auto loans even higher than currently allowed.
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Instead, of ignoring these efforts to undermine the bipartisan Military Lending Act, Congress should expand it. Under current law, predatory lenders are permitted to target the surviving spouses and Gold Star families of service members who were killed in the line of duty. Military veterans are currently entitled to no protection from predatory high-cost loans. The families of our veterans have also sacrificed much in service to the country and deserve better. And, no one knows better than our men and women in uniform that the ordinary working consumers and families of America also deserve protection from those that would seek to harm them.
DoD’s successful implementation of the bipartisan Military Lending Act shows us how hundreds of millions of American consumers could benefit from expanding the traditional usury limit of 36 percent to every American. Throughout most of our history virtually every state had a usury limit at this level or below. But today only 16 forward-thinking states, including Arkansas, Colorado, Montana, North Carolina and New York have resisted payday lender lobbying campaigns or used public ballot measures to preserve traditional usury limits.
Expanding the Military Lending Act’s usury cap to all consumers would protect veterans and consumers in states like California, Florida, Texas, and Wisconsin, where predatory payday lending continues to thrive. And, going on offense to expand the MLA would be the best defense of the protections already provided to active-duty service members and their families.
This is exactly what a new bipartisan bill called the Veterans and Consumers Fair Credit Act would do. Cosponsored by Glenn Grothman, R-Wis., and Jesus Garcia, D-Ill., in the House, and Sens. Jeff Merkley, D-Ore.; Jack Reed, D-R.I.; and Sherrod Brown, D-Ohio; the proposed law would strengthen our country by building on the military’s past successes.
In our combined decades of military, government and consumer protection experience, we have seen first-hand how predatory lenders hurt military families and, by extension, our national security. These lenders also hurt our veterans who struggle to reenter civilian life after service as well as the civilian neighborhoods and communities where so many American families work hard just to get by.
In protecting service members from predatory lenders, the U.S. military has served to remind Americans something about what freedom means at home. Borrowers that are suffering in a high-interest, financial debt trap are not free — they are trapped. The Military Lending Act has shown that we can protect active-duty service members and their families against abhorrent, predatory lending practices and products. Now, it’s time for Congress to do what our military has done for generations: “improvise, adapt, and overcome.” That is why we firmly support the Veterans and Consumers Fair Credit Act of 2019.
Paul E. Kantwill, is a retired colonel in the U.S. Army, having served on active duty for 25 years with the Army’s Judge Advocate General’s Corps prior to serving as a legal and policy adviser in the Pentagon. He also served as assistant director, CFPB, leading the Office of Servicemember Affairs. He is now distinguished professor in residence, Loyola University Chicago School of Law.
Christopher L. Peterson is the John J. Flynn Professor of Law, University of Utah, S.J. Quinney College of Law and director of financial services and senior fellow, Consumer Federation of America. He previously served as a special adviser in the Office of the Director of the CFPB.
Editor’s note: This is an Op-Ed and as such, the opinions expressed are those of the author. If you would like to respond, or have an editorial of your own you would like to submit, please contact Military Times managing editor Howard Altman, haltman@militarytimes.com.
