Wilmington – Attorney General Beau Biden, an Iraq War veteran and member of the Delaware National Guard, co-led an effort among more than a dozen state Attorneys General to call on the Defense Department to strengthen the U.S. military’s protections of servicemembers against predatory lending and other abusive lending practices that target military families.

“Our military servicemembers are disproportionately targeted by predatory lenders,” Biden said. “We owe it to the men and women who protect our country to protect them from abusive lending practices so that they can focus on their mission and their families.”

The 2007 Military Lending Act (MLA) established financial protections for servicemembers, including a 36% cap on interest and fees for certain consumer loans, and prohibited lenders from securing loans with personal checks or automatic bank account authorizations. The Act charged the Department of Defense with implementing regulations that defined those loans, and its first set of regulations extended the Act’s protections to the following three narrow categories of closed-end loans (installment loans where the borrower cannot change the interest rate, number and amount of payments, and maturity date):
• Payday loans of up to $2,000 for a term of 91 days or less;
• Vehicle title loans for a term of 181 days or less (except to purchase the car); and
• Tax refund anticipation loans.

“Military bases are surrounded by storefront predatory lenders, many of which charge triple-digit annual percentage rates,” Biden and twelve Attorneys General said in a letter sent today to Secretary of Defense Chuck Hagel which called for more robust MLA regulations. “Servicemembers, fearful of losing their security clearance, may resort to these non-traditional lenders rather than seek financial advice and assistance from their commands, or from the Department’s existing family support and financial readiness programs. The result is an increasing spiral of debt for the military borrower.”

Today’s letter was submitted as part of the public comment period of a Defense Department review of existing MLA regulations. The Attorneys General noted that although existing regulations have curbed abusive practices in the narrow categories they cover, more must be done to adequately protect servicemembers. For example, they point out that by requiring payday loans be for a minimum of $2,001 or have a minimum repayment period of 92 days, a lender can exploit a significant loophole in the current regulations. They called on the Department of Defense to modify its regulations to ensure that all payday and car title loans given to servicemembers be capped at 36% interest, regardless of the loan’s amount, structure or duration. The regulations should apply uniformly to the full range of consumer credit loans that present dangers similar to those already covered, including:
• Any open-ended or revolving payday loan;
• Any auto title loan for more than 181 days;
• Any bank loan that is secured by funds on deposit, such as overdraft loans; and
• Any retail sales credit loan or other similar rent-to-own transaction (including those where the loan is ostensibly “secured” by personal property that bears no relationship to the amount of the credit advanced).

The Attorneys General encouraged the Department to collaborate with state attorneys general to create more robust servicemember protections under the MLA. “Those who have served our country deserve the strongest protections our government can provide,” the Attorneys General said.

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