Military families will be exposed to predatory car loans and payday lenders for another year unless a little-noticed provision of the National Defense Authorization Act (NDAA) is stripped out of the bill during a House Armed Services Committee hearing Wednesday.
Majority Republicans quietly inserted language into the gigantic defense legislation that would override a Pentagon push to enhance consumer protections for men and women in uniform. Flaws in the current rules have allowed lenders to trap military families in loans that cost two, five, and even ten times as much to repay as what the loan was actually worth.
Pentagon officials laid out plans in 2014 to revamp the rules that protect armed forces families from unscrupulous financial firms, after multiple analyses of how lenders use loopholes in the 2006 Military Lending Act (MLA) to target soldiers, sailors, airmen, and Marines. But a subcommittee draft of the NDAA would prohibit the Department of Defense (DOD) from implementing the rules it wants until it conducts a further study of the current rules and submits the findings to Congress. The Pentagon would have to submit that report within the next year, and couldn’t implement any new MLA rules until 60 days after delivering it to lawmakers.
Such study would be redundant. Congress already instructed DOD to study the MLA rules back in 2012, and the department reported its findings last year, the Consumer Federation of America’s (CFA) Tom Feltner told ThinkProgress. “We are extremely concerned about this delay tactic because congress has required DOD to review its regulations and study this in the past,” Feltner said. “DOD’s own research shows that these protections are not working for one out of every 10 enlisted service members.”
The one-year delay of new financial protections for the military appears to come from Rep. Joe Heck (R-NV), who chairs the subcommittee that produced the provision without discussion. Heck’s office did not respond to requests for comment on the provision.
Rep. Tammy Duckworth (D-IL) plans to introduce an amendment on Wednesday to get rid of the delay and allow the Pentagon to go forward with its proposal. “Service members have not been fully protected since the Military Lending Act was passed, and further delay will put more service members and their families in harm’s way,” the combat veteran congresswoman told ThinkProgress, noting that the NDAA language “would force the Department of Defense to waste resources undertaking redundant studies and postpone the implementation of valuable protections.” In an op-ed for the Navy Times last October, Duckworth spelled out her support for the Pentagon’s proposal and wrote about the particular impact that financial predation has on a military family. A group of seven consumer groups sent a letter to Rep. Mac Thornberry (R-TX), who chairs the committee, urging him to support Duckworth’s amendment.
Wednesday’s full-committee markup may be the last chance to erase Heck’s delay measure, since the NDAA is “must-pass” legislation that will be hard to alter after the Armed Services Committee passes it along to the full House. House Republicans have been using such high-priority legislation to chip away at financial regulations since at least last winter. Still, restricting protections for America’s military is an unusual thing for a lawmaker to propose. “Ironically enough,” the Center for American Progress’ Joe Valenti told ThinkProgress, “the chairman’s mark also contains a provision for expanding the financial literacy of service members and their families. It directly pits these two values against each other: making sure service members have the resources they need to make good financial decisions, and yet putting predatory actors right in front of them at the same time.”
The failures of the current MLA regulations are well–documented. The law is meant to prohibit companies from marketing abusive financial products with triple-digit annual interest rates to members of the military and their families, but the DOD’s current rules only apply to payday loans with terms shorter than 91 days and auto title loans with terms shorter than 181 days.
Lenders have simply re-jiggered their offerings to have longer repayment periods, thus evading the rules and allowing them to use the kinds of high fees and astronomical interest rates that the law intended to bar. “The market has changed since 2007,” Feltner said. “Products have evolved, lenders have adapted.”
A 2012 CFA report analyzed lender abuse of these loopholes in the first 5 years of the law, and pointed out that the financial distress that usually results from predatory lending can cause military members to lose their security clearances — a significant impact on the DOD’s preparedness and a significant cost to the public in lost expertise. The department’s 2014 report noted that every involuntary separation due to personal issues, such as financial distress, costs the DOD about $57,000. It also cited research indicating that payday loan usage by enlisted Air Force members caused “significant average declines in overall job performance and retention, and significant increases in severely poor readiness.”
Beyond those abstract costs, individual horror stories abound, according to separate research from the Consumer Financial Protection Bureau (CFPB). A military spouse in Illinois was charged $5,700 by a title loan company after taking out a car title loan that was less than half that size. A soldier in Texas who borrowed less than $700 ended up paying back $2,000 on the loan because it was designed to skirt the MLA rules. The CFPB’s report spells out how military families are victimized by high-cost financial products that fall just outside the narrow confines of the current regulations.
Holly Petraeus, the CFPB’s top official for consumer issues involving the military, wrote a letter in December urging the Pentagon to implement its proposed revamp of the rules as quickly as possible. Those rules would fix a wide range of problems with the current system, closing the loan-duration loopholes and prohibiting lenders from putting forced arbitration clauses into their loan contracts with military families.
But all that could be derailed unless Duckworth’s amendment succeeds in stripping Heck’s language out of the NDAA — something that would require some of the committee’s majority Republicans to cross the aisle and oppose one of their own.
Take the politics out of it, though, and it becomes a no-brainer. “If you think about the financial stress many of these folks are facing, being away from their families for long periods, having to deal with all kinds of uncertainties,” Valenti said, “it’s hard to imagine that opening the doors to lenders that we know tend to cluster around bases and readily see military borrowers as attractive targets would make things any better.”
Duckworth’s amendment succeeded by a slim margin, 32–30, and the Heck provision to delay the new lending protections was stripped from the NDAA. 30 out of the committee’s 37 Republican members voted against the Duckworth amendment, and five sided with Democrats.