The Obama administration and many congressional Democrats are pushing to create a strong Consumer Financial Protection Agency (CFPA) that will be able to “effectively enforce rules designed to protect consumers of mortgages, credit cards and other financial products.” Such legislation has already passed the House. However, now, Senate Republicans and their allies in the financial industry are trying to block these efforts by weakening the legislation in every way they can. House Minority Leader John Boehner (R-OH) has even urged bankers to stand up for themselves against “little punk staffers” on Capitol Hill and lobby against financial reform.
Advocates for reform now have a powerful ally on their side: the Pentagon. On Feb. 26, Undersecretary of Defense Clifford Stanley wrote to the Treasury Department and advocated a strong CFPA, noting that military families are often the targets of unscrupulous financial practices:
The Department of Defense would welcome and encourage CFPA protections provided to Service members and their families with regard to unscrupulous automobile sales and financing practices, provided such protections would not limit access to legitimate products. While each Military Service includes car buying and financial classes as part of its normal financial educational curriculum, there are still documented cases of Service members falling victim to predatory practices and prohibitively expensive products. […]
We recognize Service members and their families are under increasing stress. When we have asked in surveys about the causes, Service members responded that finances were second only behind work and career concerns and ahead of deployments, health, life events, family relationships, and war/hostilities.
Last week, Pentagon officials also met with Treasury Secretary Tim Geithner about the CFPA. “DOD firmly believes that the financial readiness of their troops and families equates to mission readiness and anything that we can do to help our families be financially ready, we will support the family and the mission,” said avid Julian, the director of the Defense Department’s Office of Personal Finance.
Predatory lenders have long targeted military families. In 2006, the AP found that thousands of U.S. servicemembers were “being barred from overseas duty because they are so deep in debt that they are considered security risks.” Military officials blamed the problem, in part, on “high interest rates at payday lending businesses, many of which are clustered outside bases around the country.” That same year, President Bush signed legislation limiting the interest rate on payday loans for military families.
An area of particular concern now is shady automobile lending. In a survey of 659 military financial managers, counselors legal assistance officers, 72 percent of them said that they “had counseled Service members in the past six months” about tactics such as “bait and switch” financing, falsification of loan applications or documents, and other abusive practices in auto financing. Currently, however, auto dealers don’t have to follow the same rules as community banks and credit unions.
Unfortunately, in October, the House Financial Services Committee approved an amendment that would “exempt auto financing from independent dealers” from CFPA oversight. (Democratic Chairman Barney Frank opposed the measure.) If Sen. Bob Corker (R-TN) gets his way, payday lenders will also be exempt.