Pentagon Limits Scope of Predatory Loan Rules

WASHINGTON – The Department of Defense will issue final rules today implementing a new law capping interest rates for military personnel and has agreed to restrict the scope of the final rules to answer pleas by credit unions. The rules will limit the new 36% interest rate cap to just three types of loans: payday loans up to $2,000 and as long as 91 days in duration, auto title loans less than 181 days in maturity, and refund anticipation loans. The final rules represent a victory for credit unions and banks who lobbied to prevent the interest rate cap being applied to a variety of other open-ended loan products. As a result, the final rules do not apply to mortgage loans, including home-purchase transactions, refinancings, home equity loans and lines of credit, and reverse mortgages. They also don’t apply to purchase money vehicle loans, secured personal property loans, loans secured by qualified retirement accounts, and credit that is not "consumer credit" or not subject to Regulation Z disclosures. The final rules also clarify that credit cards are not subject to coverage. Fred Becker, president of NAFCU, which helped shape the final rules, praised the DoD for limiting the scope of the measure, which was intended to reign in payday lenders and other types of high-cost credit that prey on enlisted personnel. “We believe that this objective has been achieved and we want to thank DoD for taking a very thoughtful and judicious approach in drafting a narrowly tailored rule to focus on the specific products giving rise to the most significant concern,” said Becker. CUNA also lobbied to limit the scope of the rules. The rules take effect Oct. 1.