Defense Department Proposal could Eliminate Alternative Financial Services for Military Personnel

The Defense Department is on a mission; a mission that they say will bring some strength to lending protections for troops and their families. This mission, if successful, could wind up costing troops access to payday loans and other types of short term financial services/products. We all want what is best for our troops, but is the Defense Department taking the offense on an issue that may wind up causing financial harm to the troops it so desperately wants to protect?
The proposal form the DoD has enjoyed the support of the National Credit Union Administration. If it is approved, the proposal could very well expand the reach of the Military Lending Act. This act was put in place to protect military folks and their family members from predatory lending practices; according to the NCUA’s chairperson of the board, Debbie Matz.
Commenting on the proposal at a meeting of the Defense Credit Union Council’s Overseas Subcouncil, Matz said, “However, we are asking that the rule be implemented without the unintended consequence of outlawing affordable credit union loans to the very service members the law was intended to protect.” The NCUA is currently the independent federal agency that helps to regulate and supervise federal credit unions.
At the meeting, Matz went on to say, “We have done the math and found that when fees are included, many credit unions’ short-term loans would exceed the proposed 36 percent military [annual percentage rate] limit.”
Officials at the organization have made past proposals to broadly expand the rules that are already in place, with regards to the Military Lending Act of 2006. This act currently limits interest rates to 36 percent on some forms of credit that can be charged when service members and their family members take out loans. As of right now, the DoD’s rules cover vehicle title loans, refund advance loans and payday loans. Some lending companies have changed the products and services that they offer in order to comply with the current DoD rules and regulations.
The new proposal, however, would apply to nearly all forms of credit, including deposit advance loans, installment loans, open-ended loans and credit cards. With credit cards, the creditors can exclude charges in the APR or any fees that are considered to be per normal industry standards. There is, as of the time of this writing, no mention of purchase money loans or mortgages qualifying for these types of protections.
Mats elaborated, and stated that the expanded rules from the DoD would cause problems for payday alternatives that are offered by some credit unions. Conveniently for the parties involved in the new proposal, the Pentagon Federal Credit Union and other military-based credit unions were mentioned, which may lead to those organizations earning a spot as exempt if the new proposals are approved and put into place. In fact, Matz went so far as to write a letter to the DoD to ask for exemption status for lenders that offer “payday alternative loans.” Matz said, “, the Defense Department’s proposed rule could cut off military members’ access to [payday alternative loans] or similar loans.”
With advocates like this, military personnel may very well need to watch their backs when it comes to their personal freedom of choice with regards to their finances. It appears that the writing is on the wall, so to speak, and that the new proposals will wind up becoming the letter of the law before too long. Until then, however, at least our service people are still able to decide what is best for them and their families when the time comes to borrow money.