Sens. Carper, Coons support DOD plan to better protect military families from abusive financial practices

WASHINGTON – U.S. Senators Tom Carper and Chris Coons today joined a group of 40 Senate colleagues in supporting the Department of Defense’s (DOD) plan to update the Military Lending Act (MLA) and close existing loopholes in order to better protect soldiers and their families from abusive financial practices. The letter, sent to U.S. Secretary of Defense Chuck Hagel, expresses strong support for the proposed new rule to help prevent lenders from charging excessive fees and taking advantage of military families. U.S. Senator Jack Reed (D-R.I.) and Assistant Senate Majority Leader Dick Durbin (D-Ill.) led the letter.

Following a 2006 Pentagon report that found that “predatory lending undermines military readiness, harms the morale of troops and their families, and adds to the cost of fielding an all-volunteer fighting force,” Congress passed the MLA. This law capped the annual interest rates for consumer credit to service members and their dependents at 36 percent while giving DOD the authority to define what loans should be covered. The DOD’s 2007 implementing regulations narrowly included only three types of loans: (1) payday loans: closed-end loans with terms of 91 days or fewer, for $2,000 or less; (2) auto title loans: closed-end loans with terms of 181 days or fewer; and (3) refund anticipation loans: closed-end credit.

In the proposed changes to the MLA, first announced in September, DOD seeks to close existing loopholes in the current MLA rule. Today’s letter voices strong support for the proposed rule, arguing that the changes strike a better balance between protecting service members and their families while maintaining access to good credit. 

“As our service members are asked to take on even more tasks in defense of our nation, we should take every opportunity to protect them and their families here at home, especially from unscrupulous lenders,” the senators wrote. “We strongly support the proposed MLA rule and urge that the final MLA rule be similarly robust in enhancing protections for service members and their families, producing significant cost savings for DOD, and improving military readiness.”

In addition to Sens. Carper and Coons, Sens. Reed and Durbin were joined by Senators Mark Udall (D-CO), Levin (D-MI), Brown (D-OH), Hirono (D-HI), Manchin (D-WV), Warner (D-VA), Franken (D-MN), Baldwin (D-WI), Nelson (D-FL), Murphy (D-CT), Blumenthal (D-CT), Merkley (D-OR), Heinrich (D-NM), Warren (D-MA), Gillibrand (D-NY), Murray (D-WA), Whitehouse (D-RI), King (I-ME), Klobuchar (D-MN), Tom Udall (D-NM), Kaine (D-VA), McCaskill (D-MO), Shaheen (D-NH), Schatz (D-HI), Markey (D-MA), Bennet (D-CO), Donnelly (D-IN), Feinstein (D-CA), Cardin (D-MD), Wyden (D-OR), Heitkamp (D-ND), Tester (D-MT), Boxer (D-CA), Hagan (D-NC), Harkin (D-IA), and Schumer (D-NY) in signing onto the letter.  The signatories include every Democratic member of the Senate Armed Services Committee.

The comment period, which was recently extended, for the proposed rule ends on December 26, 2014.

The full text of the letter follows:

The Honorable Chuck Hagel

Secretary

U.S. Department of Defense

1000 Defense Pentagon

Washington, D.C. 20301-1000

Re: Limitations on Terms of Consumer Credit Extended to Service members and Dependents

Docket ID: DoD-2013-OS-0133

Dear Mr. Secretary:

We are writing in response to the Department of Defense (DOD) proposal to update the implementing rules for the Military Lending Act (MLA).

By enacting the MLA as part of the John Warner National Defense Authorization Act for Fiscal Year 2007, Congress sent a clear bipartisan message that protecting service members and their families from predatory and high cost lending was of paramount importance to their financial security and military readiness.

This concern was reiterated in the Conference Report for the National Defense Authorization Act for Fiscal Year 2013, which stated that “the conferees are concerned that the Department must remain vigilant to eliminate continuing, evolving predatory lending practices targeting service members and their families, and believe the Department should review its regulations implementing section 987, to address changes in the industry and the evolution of lending products offered since 2007, continuing use of predatory marketing practices, and other abuses identified by consumer protection advocates, including the Consumer Financial Protection Bureau’s Office of Servicemember Affairs.”

As a result of this required review of the current MLA rule, DOD in its proposal now recommends closing existing MLA loopholes. We believe this strikes a significantly better balance than the current MLA rule between protecting service members and their families on the one hand and maintaining access to non-predatory credit on the other. As such, this proposal also does a much better job of reflecting Congressional intent. 

Specifically, we support the proposal to expand the MLA’s “definition of ‘consumer credit’ to cover a broader range of closed-end and open-end credit products.” In so doing, the rule proposes that these products be treated in a manner generally consistent with the decades-old requirements of the Truth in Lending Act. 

This comprehensive approach is essential to preventing future evasions. As DOD notes in its proposed rule, “the extremely narrow definition of ‘consumer credit’ permits creditors to structure credit products in order to reduce or avoid altogether the obligations of the MLA.” For example, MLA protections currently can be avoided by simply adding a day to the term of a payday loan or by lending just one additional cent so that the payday loan no longer qualifies as “consumer credit” subject to the MLA protections.   

Contrary to Congressional intent, these evasions threaten military readiness. According to DOD, “each separation of a service member is estimated to cost the Department $57,333, and the Department estimates that each year approximately 4,703 to 7,957 service members are involuntarily separated due to financial distress.” In addition to the estimated cost savings DOD has identified, we give great weight and deference to DOD’s statement that the proposed MLA rule “would reduce non-quantifiable costs associated with financial strains on service members. High-cost debt can detract from mission focus, reduce productivity, and require the attention of supervisors and commanders.” As a result, we strongly agree with DOD’s view that the proposed MLA rule not only has the potential to produce substantial cost savings, but also enhance military readiness.

In August of last year, a number of us wrote, “service members and their families deserve the strongest possible protections and swift action to ensure that all forms of credit offered to members of our armed forces are safe and sound.” Indeed, as our service members are asked to take on even more tasks in defense of our nation, we should take every opportunity to protect them and their families here at home, especially from unscrupulous lenders. 

For all these reasons, we strongly support the proposed MLA rule and urge that the final MLA rule be similarly robust in enhancing protections for service members and their families, producing significant cost savings for DOD, and improving military readiness.