DOD Official Explains Intent Of New Lending Proposal

HONOLULU - The Department of Defense is looking to work with regulators and credit unions to strengthen rules related to abusive credit practices, according to a spokesperson.

David Chu, under secretary of defense for personnel and readiness, explained to the Defense Credit Union Summit here why the DOD has proposed rules that seek to regulate the terms of consumer credit that is made available to active duty service members and their dependents.

That proposal has had many financial institutions, along with their regulators, chafing, as the proposal appears to supercede the regulatory authority of agencies such as NCUA and FDIC.

It calls for limits on certain payday loans, such as vehicle title loans and tax refund anticipation loans, and would require the disclosure of a military annual percentage rate capped at 36%.

Chu acknowledged some financial institutions have reacted unfavorably to 36% cap, while consumer groups have called the rule too "limited" in scope.

A final rule is expected on Sept. 1.