Report from Governmental Affairs

Taking the Offensive

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The ABA is urging Congress and the Department of Defense to take stronger steps to protect financially strapped military personnel from predatory practices when they seek short term consumer loans.

So called payday lenders, along with other types of short term consumer lending businesses, are flourishing, and it’s easy to find them near military bases. A report issued in August by the Defense Department cites estimates that members of the military take out payday loans three times as often as civilians.

Payday lenders say they provide a necessary service and deny targeting members of the military, but the report raises concerns about predatory lending practices that make it difficult and costly for service members to pay off loans that carry high interest rates and fees.

The Report on Predatory Lending Practices Directed at Members of the Armed Forces and Their Dependents emphasizes that the Defense Department has provided financial education training to thousands of military service members. The report states, however, that education alone won’t protect service members from predatory lending practices without tougher sanctions against companies that engage in those practices. The report is available at Congress_ final.pdf. (For more on ABA efforts to protect the rights of those in our military, see President’s Message, page 6.)

Recommendations in the report include measures to enhance and strengthen existing rights of military personnel consistent with protections contained in the Servicemembers Civil Relief Act of 2003. That law covers such areas as rental agreements, interest rates on credit cards and mortgages, and insurance.

Urgent Need for Action

The recommendations in the defense department report are consistent with ABA proposals for protecting service members from predatory lending practices. The appendix to the report contains a letter setting forth the ABA’s proposals.

“The ABA believes that the ample record adduced to date with respect to the destructive impact of these practices on our service members and their families speaks powerfully to an urgent need for remedial congressional action, not limited to so called payday loans but extending to other unfair consumer credit practices, such as deceptive auto financing, auto title pawn practices, and abusive installment loans,” states the letter from retired Marine Gen. Earl E. Anderson of Vienna, Va., who chairs the ABA Standing Committee on Legal Assistance for Military Personnel.

“It must not be lost on those charged with addressing these issues that the greatest harm caused by predatory lending practices is damage done to the lives and dreams of service members and their families by unremitting, unjust consumer debt,” Anderson wrote. In September, Congress approved a narrow bill that would prohibit the sale of certain insurance and investment products to members of the military, and extend the authority of state insurance regulators to include military installations. President Bush was expected to sign the bill.

Meanwhile, the Senate version of legislation authorizing defense spending for fiscal 2007 includes provisions to control predatory lending. The ABA supports those provisions, and it has urged that conferees from the Senate and House of Representatives include them in the final version of the bill, which was expected to be acted on by Congress before the end of 2006.

This column is written by the ABA Governmental Affairs Office and discusses advocacy efforts by the ABA relating to issues being addressed by Congress and the executive branch of the federal government.

Rhonda McMillion is editor of Washington Letter, an ABA Governmental Affairs Office publication.

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