A new report from the Consumer Financial Protection Bureau (CFPB) says that government officials really, really need to expand pay-day lender financial protections for troops if they want the rules to have any real impact -- and they give actual examples why.
The CFPB is a government organization that works with agencies to make sure Americans aren't getting fleeced by predatory financial institutions or those with illegal practices. They have an entire arm, run by Holly Petreaus, dedicated to helping military personnel and their families. That sections does things like work with both federal and state officials to prosecute businesses that break rules or prey on ignorance in a way considered "predatory."
They also recommend new rules or changes to current law.
The current rules look like this: if you are taking out a payday loan, a tax-refund loan or a car loan, those lenders cannot charge you more than 36 percent interest. For payday loans the rule applies to those that are for no more than $2,000 and last no more than 91 days. For auto title loans they only apply to those that last no more than 181 days. For loans greater than $2,000 and 91 days for payday and 181 days for auto, lenders can currently charge you whatever they want.
So they do. It doesn’t take a rocket scientist to figure out that, as a lender, making the payday loan for $2001 or 92 days, for example, is going to make you a lot more money in interest. Same thing with the auto title loan.
The CFPB report highlights some examples of this actually happening. In Tennessee, a service member got a loan for $540.46, repayable over seven months with an annual percentage interest rate of 84.02 percent. That makes a finance charge of $159.54. In California a service member was charged a fee of $3,966.84 over 12 months to borrow $2,600. That's a 219.12 annual percent rate (!!). And in Texas a lender charged a service member an annual percentage rate of 584.72 percent for a $485 loan.
And that’s why they say that Congress should green-light an expansion of the current rules, known as the Military Lending Act. They say they should cap interest at 36 percent for all payday and auto title loans, regardless of length or value. They also want to add open-ended lines of credit to the rules, requiring no more than 36 percent interest for those, too.
The report also highlighted some trends across military use of these types of loans. For example, “22 percent of service member accounts obtained at least one deposit advance, compared to 16 percent of accounts held by service members and the general population,” according to the summary. And for about $50 million in advances, service members paid about $5 million in fees. That number would be greatly reduced, they said, if the rules were expanded.
I don’t think any of these rules are a bad idea. But like we've asked before, why not have them for every American? I’m 100 percent behind special rules for the military when it comes to protections that make sense because of deployments or military moves. But payday loans and credit?
If we are going to protect service members from what are viewed as predatory practices, why not also protect civilians?