Durbin, Reed Welcome Additional Tools to Crack Down on Predatory Lending Practices
[WASHINGTON, D.C.] – U.S. Senators Dick Durbin (D-IL) and Jack Reed (D-RI), applauded a new rule announced today by the Department of Defense that will close loopholes in the Military Lending Act (MLA) and better protect servicemembers from predatory lending practices. Last year, Durbin and Reed led a letter to then-U.S. Secretary of Defense Chuck Hagel expressing strong support for the proposed rule to help prevent lenders from charging excessive fees and taking advantage of military families.
“Predatory lenders are undermining the strength of our military by threatening the economic future of our servicemembers,” Senator Durbin said. “I am glad to see the Department of Defense take action today to better protect military families from exploitation and unfair lending practices—it’s the right thing to do.”
“This is a significant win for our troops and their families. Predatory lending is a threat to military readiness and therefore our national security, and frankly these commonsense protections are long overdue. The MLA was designed to enhance financial protections for military families and updating the rules and closing these loopholes will help make it more effective and ensure lenders don’t put an unfair financial strain on our troops and their loved ones. Predatory lending, unfortunately, continues to evolve, and we need to strengthen our consumer protections to keep up. Plugging these MLA loopholes is an important step toward protecting our service members and their families,” said Senator Reed, the Ranking Member of the Senate Armed Services Committee and a senior member of the Banking Committee.
Congress passed the MLA 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.” The MLA capped the annual interest rates for consumer credit to service members and their dependents at 36% while giving DOD the authority to define what loans should be covered.
When originally implemented in 2007, the 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 November 2014, Durbin and Reed led a group of 40 Senate colleagues in support of the Department of Defense’s plan to update the MLA and close existing loopholes in order to better protect soldiers and their families from abusive financial practices. That letter is available here.
The final rules announced today would expand the application of the MLA to include additional types of credit, including deposit advance products, credit cards, and unsecured open-end lines of credit, and more types of auto title, payday, refund anticipation loans, and installment loans.
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