Yesterday, I wrote about proposed changes to the Military Lending Act (MLA). The MLA prohibits certain short-term lenders from giving bad terms to members or their families.
And I have some problems with that.
It may seem odd that I would not like legislation that protects military families and improves their financial situation. However, I think this sort of protection creates just as many problems as it solves. And my objections are many-faceted.
Education Is BetterAs a financial educator who works with military families, I understand the Department of Defense's (DoD) desire and interest in protecting military members from high cost loans. I want to protect military members from high cost loans. These loans can cause an avalanche of trouble, not only by making small financial troubles into large financial troubles, but also potentially by causing loss of security clearances (and jobs) and possibly even exposing the servicemember to prosecution under the Uniform Code of Military Justice (UCMJ).
However, preventing military members from taking out bad loans isn't going to magically make them into better money managers. They'll still be in financial trouble, and they still won't have the skills to deal with that trouble.
I'd much rather protect people by teaching the dangers of these predatory loans, and through financial education that helps people better manage their money so that they don't need these loans in the first place. Education should always be the first step in changing behavior.
I Dislike Unnecessary LawsAs an individual who abhors any laws that aren't absolutely necessary, it really bothers me to have our country legislate away a part of a the free-market economy. Yes, I think usurious (high-cost) loans are bad, and I don't want any person to ever take such a loan. But I don't think that making it illegal is the best solution. The government's interest in this issue is not compelling enough to warrant legislation.
I Am Not A ChildAs a military family member, I am offended that this law (and its proposed amendments) prevent me from making my own bad financial decisions. I am pretty solidly into adulthood. If I want to go take out a car-title loan with a 48% interest rate, I should not be prevented from doing so because of my husband's employer. It's just not right.
If the military wants to treat its military families like children, let's at least do it in a productive manner. Good parents don't build bubbles around their children. Instead, they help their kids navigate the harder parts of the world until they are capable of doing it themselves. Otherwise, the children won't have the skills to be capable adults.
By preventing service members and their families from exposure to bad loan products, the DoD is creating a protective bubble that will pop as soon as the soldier, airman, sailor or Marine leaves the service. Then, we'll have a crop of veterans who aren't prepared to deal with the predatory nature of the real financial world. Which one of these two situations seems worse to you: have a service member take out a bad loan, and learn from it, while they are employed and surrounded by a world of support services, or have a potentially unemployed veteran take out a bad loan while trying to navigate all the other hazards of life post-service?
I'm hoping that none of you will misunderstand my objections to these laws. I hate predatory lenders, and I would do a lot of things to put them all out of business. Eliminating their military business isn't going to make that happen, but it will have a lot of other consequences. And I don't think they are all good.
What do you think?