Payday lenders are hitting back against Washington regulators who say that they’re unfairly taking advantage of military families.
The embattled industry argued Wednesday that a scathing report issued Monday by the Consumer Financial Protection Bureau (CFPB) proposes new regulations that would end up hurting military members and limit their access to quick credit.
The CFPB report alleged that payday lenders were taking advantage of loopholes in the Military Lending Act to overcharge military members’ families and veterans through high-interest rates participation fees and other add-on products.
CFPB officials concluded the report by pushing to broaden the scope of the Military Lending Act, which Congress passed in 2006 to help protect active-duty military personnel from predatory lending practices. ”
“Even though the CFPB’s intention is to help and protect service members, their policies will end up hurting them and their ability to obtain credit in a quick manner when necessary,” said Kenneth A. Lee, a senior associate at Tully Rinckey Law Firm, which has argued against the new regulations.
CFPB officials did not respond to a request for comment.
Congress gave CFPB officials the authority to implement the law, which capped rates for military members and their family at 36 percent. The new proposal would require payday lenders to check a database before issuing credit to military members.
Lee’s comments echo the National Association of Federal Credit Unions (NAFCU), which has also been critical of the new proposal. In a blistering nine-page comment letter to CFPB officials on Dec. 23, NAFCU President and CEO Dan Berger argued that the new policies would create a regulatory burden for credit unions that’d limit their ability to service military families.
“This proposed rule, if finalized, could impact credit unions’ ability to provide credit products to servicemembers due to the interest rate restrictions already imposed on credit unions,” Berger wrote. “The additional cost of compliance would also severely impact small and mid-sized credit unions and provide another barrier to offering small dollar loans generally.”
A financial services lobbyist said that the financial services industry is concerned about the logistics of requiring providers to become dependent on a government database.
The lobbyist said that by requiring the industry to check the database, regulators are shifting responsibility for people to identify themselves in the military from the consumer to the provider.
“It completely shifts the burden from the consumer to identify themselves as military,” the lobbyist said. “It forces lenders to have to interact in real time with a database — and that system is prone to accuracy and reliability issues.”
The policy spat is the latest in what’s become a heated fight between payday lenders and the consumer agency, which was created in the 2010 Dodd-Frank Wall Street reform law after Sen. Elizabeth Warren (D-Mass.) advocated for its existence.
Republicans argue that the agency’s leadership structure and funding mechanism give it too much power.
They’ve proposed a handful of bills that would expand congressional oversight over the agency, though none has gained traction to date.
While payday lenders oppose the regulations, progressive consumer interest groups are supporting it.
Nearly 200 interest groups — including progressive groups like Americans for Financial Reform, Public Citizen and the Consumers Union — sent a letter to Defense Secretary Chuck Hagel on Monday supporting an expansion of the law.
“The proposed rule strikes an appropriate balance between access to credit and restricting access to high cost abusive credit,” the groups wrote.
This story was updated at 4:06 p.m.