WASHINGTON -
That would be payday loans up to $2,000 and under 90 days in maturity; refund anticipation loans and title loans.
If the scope of the proposed rule is enacted it would represent a major victory for the credit union lobby which urged the DoD to exempt a variety of services and products, such as GAP insurance, identity theft insurance, credit insurance and overdraft protection from the proposal. CUNA and the Defense CU Council argued in comment letters to the DoD that last year's law-which passed the Congress in a quick six-months' time-was not intended to apply to such products and the DoD apparently agrees.
But in drafting the rules, the DoD has rejected a plea from the bankers who have asked for a much broader exemption for all products and services offered by federally insured financial institutions.
Fred Becker, president of NAFCU, which supported the proposals, said credit unions are concerned that the new rate cap would be applied so broadly that it could prevent many needy military members from accessing various products and services, especially as credit unions continue to expand into those areas that were once the domain of payday lenders and check-cashers. "We hope credit unions will be able to continue offering the traditional loan products that they have been able to provide for years to members of the military," Becker said.
Congress placed the interest rate cap on all consumer credit loans last year, giving the DoD the job of deciding what practices fell under Congress' definition of "consumer credit."
The worry is that what may seem to be acceptable rates on loans is regularly blown up by add-on fees and charges over the short-term, pushing the annual rates up into triple digits. Most payday lenders charge around $15 per $100 borrowed, pushing annual interest rates on two-week loans close to 400%. A 36% cap would limit fees to $1.38 for each $100 borrowed.
Payday lenders were predicting last week that the new law will eliminate all payday lending to military personal, an unintended consequence.
The law passed very quickly, compared to most bills, as it was pushed as part of a package for military preparedness related to war expenditures for Iraq and Afghanistan. As such the bill did not go through the normal chain of jurisdiction, which would have included both the House Financial Services Committee and Senate Banking Committee, both of which deliberate over proposals affecting lending. Instead, the bill was pushed through the Senate Armed Services Committee, which allowed lawmakers to bypass the more deliberative panels and expedite the process.
