WASHINGTON – The Defense Department is recommending that Congress narrow a law designed to protect military service members and their families from abusive payday loans.
In a report to the Senate Armed Services Committee, the department said that the so-called Talent amendment, which caps interest rates on payday, vehicle title, and refund-anticipation loans, mostly has worked well.
But it also recommended that Congress take the suggestion of HSBC North America Inc., which has urged the Defense Department to better define those eligible for the cap. At issue is how financial institutions determine if consumers fall under the Talent amendment's scope. Banks and credit unions have complained they have difficulty determining whether a loan applicant is in the military or qualifies as a dependent. In its report, the Defense Department said lenders should have access to the Defense Manpower Data Center, a database used to track those eligible for military benefits. Anyone in the database would be covered under the Talent amendment, the department said.
“This approach could allow creditors a more efficient method of assuring they are complying with the law, regulators a consistent approach they can apply during their compliance evaluation," the Defense Department said. "Most importantly this approach relieves the borrower of the burden of proving (or disproving) he or she is covered by the regulation."
Bankers, who said the original plan could have resulted in less credit to service members, also have been pleased with the final result, which exempts products such as credit cards from the interest rate cap. "We thought it was good and consistent with our view that banks and saving associations aren't the bad guys here," Mark Tenhunfeld, the American Bankers Association's senior vice president for finance, institutional policy, and regulatory affairs, told American Banker. "The bad guys are the unregulated payday lenders."
