Pentagon rolls out new military lending rules

The announcement to close the law’s loopholes, which the Defense Department has been working on for the last three years, coincided with the fifth anniversary of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new rule becomes effective on October 1, 2015, with compliance required by October 3, 2016.

The new rule also will count charges for extra products, like credit default insurance, in calculating the military annual percentage rate “so lenders can not skirt the rules by imposing extra fees”, said a White House fact sheet on the changes.

The Defense Department today issued a final rule tightening restrictions on lending to service members.

The Military Lending Act does not apply to residential home mortgages or the financing related to purchasing or leasing a vehicle. Consumer advocates have routinely criticized that decision ever since.

He said the new rules will be gradually implemented, starting October. 1. “The final rule published today will ensure that servicemembers and their families get the financial protections they deserve”.

The rule will help protect all active-duty service members and their families from committing to loans with excessive fees and charges.

In developing this rule, the DOD consulted with the Federal Trade Commission, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, the National Credit Union Administration, and the Treasury Department.

The state expressed concern that companies, including Omni Military Lending in Evans Mills, were offering unlicensed loans at the 36 percent rate.

The MLA prohibits creditors from requiring service members to: submit to mandatory arbitration and onerous legal notice requirements; waive their rights under the Service Members’ Civil Relief Act; provide a payroll allotment as a condition of obtaining credit (other than from relief societies); be able to refinance a payday loan; or be able to secure credit using a post-dated check, access to a bank account (other than at an interest rate of less than 36 percent MAPR), or a vehicle title (other than with a bank, savings association or credit union). “This way, service members will have a variety of options”, he said.

She gave an example of one military loan with an April of 300 percent, made possible because the loan was technically longer than what was covered under the DoD regulations.

Addressing the problems with loopholes in the initial DoD rules has been a “sustained, long-term effort” for DoD, said Holly Petraeus, assistant director of Servicemember Affairs for the Consumer Financial Protection Bureau.

A number of lenders have said troops and families need access to these high-cost loans as an alternative, and for convenience, Petraeus said, but added that when she sees 20 “fast cash” businesses outside the gates of a military base, “that’s not a convenience – that’s a problem”.