Cap Loan Interest Rates for Military Veterans Protect from ‘Loan Sharks’

Pentagon Setting a 36% Max Interest Rate on Loans For Military Members to Protect Against  Predatory Lenders
by Rick Maze

A new Pentagon report endorses the idea of setting a 36-percent maximum interest rate on loans for military members because predatory lenders are targeting young service members and their families.

The Aug. 9 report to Congress, released by Sen. Jim Talent, R-Mo., said the military population has been targeted for high interest rate and high fee loans because its members have steady jobs and bank accounts but are young and inexperienced.

These borrowers are less likely to weigh the predatory loan against other opportunities and are less likely to be concerned about the consequences of taking the loan, the report says.

Predatory products feature high fees/interest rates, with some requiring balloon payments, while others pack excessive charges into the product, the report says. The result of their efforts is to obfuscate the comparative cost of their product with other options available to the borrower.

Talent is interested because the Defense Department report recommends the same 36 percent cap on interest rates that he proposed in an amendment to the 2007 defense authorization bill. That amendment cleared the Senate and is now pending before a conference committee working out differences between the House and Senate bills…

House negotiators are being urged by Rep. Steve Buyer, R-Ind., the House Veterans’ Affairs Committee chairman, to drop the interest cap from the defense bill because he does not believe the provision belongs in the defense bill. The dispute is largely jurisdictional because consumer interest for service members is a matter than falls under oversight of the veterans’ affairs committee while the defense authorization bill is the chief responsibility of the armed services committee.

The report concludes that predatory lenders are targeting service members to make a quick buck at the expense of the livelihood and future of those defending our freedom, Talent said in a statement. He said he was pleased the Defense Department supported the interest rate cap.

The report supports our cap to stop these abusive lenders from preying on military personnel and their families, Talent said. Predatory lending has been a staggering problem, impacting troop readiness. It’s time to enact this long-overdue protection into law for our service members.

While Talent reads the report as an endorsement, the Pentagon has not taken a direct stand on whether the 36 percent interest cap should be included in the defense bill over Buyer’s objection.

Predatory lenders some in many varieties, from payday loan operations to advanced refund operations and even Internet-based lenders, the Defense Department report says. One thing they have in common is targeting people based on their guaranteed continued income rather than the ability to repay the loan, which is one of the reasons why those getting the loans have trouble paying them off, the report says.

In fact, defense officials said the inability to pay back a loan in full is part of the business model for loans targeting service members because this means more fees can be charged when the loan is refinanced.

Interest-rate limits generally are set by states, not the federal government, but the Pentagon report said this works against service members. Predatory lenders attempt to work outside of established usury limits, either by attempting to obtain exemptions from federal and state statutes or by developing schemes designed to circumvent existing laws, the report says.