Dept of Defense Leaves Military Families Exposed
Last fall, as stories surfaced about military families preyed upon by lenders charging 400% and more, the DoD issued a report explaining that overwhelming debts were impairing military readiness. Congress responded with a new law to limit the interest rate that can be charged to military families. The cap is 36%--steep, but far better than what was out there.
Credit card issuers and banks charging verdrafts had lobbied Congress to be exempted from the new regulations. Congress refused, bolstered in part by consumer groups arguing that 400% effective interest is 400%, regardless of who collects it.
After the bill passed, the consumer finance industry shifted their lobbying efforts to the DoD. The lobbying paid off. The new DoD rules drafted by the DoD excludes credit cards, car loans, home equity loans, reverse mortgages, refinancing and tax refund anticipation loans. The banks declared themselves pleased. Congressional Daily quotes the Financial Services Roundtable rep as saying, "Overall, it seems that it tracks pretty close to our recommendation."
The basic question is whether it matters who is charging 400% interest--or more. The DoD seems to buy the argument that this isn't about high rates, but about the structure of payday lending.
Gee, I thought it was about money--and how lenders have taken advantage of the financial strains and sometimes the lack of sophistication to take advantage of these families. Little did I realize that the outcome doesn't matter--only how it was done.
The lenders made the same argument they make in response to every effort to regulate credit: if you don't let us do what we want, we won't lend to these people at all.
But that argument proves too much. Military families are good risks--steady paychecks, can always be found, won't have medical debts. It is well known around the base that not paying debts can damage a military career. Besides, nearly all military families are eligible to join excellent credit unions. Those credit unions operate under much stricter laws than a 36 percent usury cap, and yet they prosper. It is possible to make a very tidy profit lending to military families at rates less than 36%, but the profits won't be as juicy as they are in a world without interest caps.
The issue isn't quite dead. The DoD's regulations are subject to 60 days of public comment. If there is enough bad press over this, the DoD may rewrite the regulations. And military families may get the stronger protection they deserve.
Comments (9)
The banks declared themselves pleased.
Elizabeth, the link on the word pleased has two web addresses and clicking on it sends you to a page with no information. You might want to correct it.
Satellite Sky Blog
Find the Truth. Do Justice.
April 17, 2007 5:13 AM | Reply | Permalink
I saddens me that Elizabeth's post on the financial abuse of young enlisted folks in the military has drawn no comments in four days while the post on the poor kids at Virgina Tech has drawn 300+ comments in less than a day.
The presumably largely middle class audience at TPM seems to find it much easier to relate to a murdered 2nd-year engineering student at V Tech than to a Lance Corporal or Specialist whose family is being destroyed by predatory lending practices.
Empathy seems to be deeply rooted in what we used to call Socio-Economic Status (SES) and what some would call "class".
As I noted at the outset, this saddens me.
I am especially saddened that senior uniformed leadership has not taken agressive action on payday lending.
Four decades ago, when I served in Indochina, many officers took considerable effort to warn young soldiers of the comparable financial predators of that era (the "5 for 7" NCO loan sharks in the barracks and the pawn shops outside the base gate.)
The silence of today's senior officers is complemented, it seems, by the silence of the TPM class.
Professor John Stuart Blackton
April 17, 2007 10:10 AM | Reply | Permalink
Re: The presumably largely middle class audience at TPM seems to find it much easier to relate to a murdered 2nd-year engineering student at V Tech than to a Lance Corporal or Specialist whose family is being destroyed by predatory lending practices.
To be a bit fair here, money woes are whole orders of magnitude less calamitous than death. Though I too wish there had beebn more commentary on this. And I really wish the Democrats would trumpet this business loudly and often.
April 17, 2007 4:51 PM | Reply | Permalink
I just read this blog and appended comments. I well recall from more years ago than I sometimes care to remember the problems of consuling a young enlisted man about debt problems. It was even harder when I packed his personal effects for shipment back to the world and found dunning letters, foreclosure notices and similar symptoms of the financial industry taking advantage of easy prey.
The notion of Congress once again truckling to Big Bidness (as we say in Texas) to the disadvantge of individuals who by joining the military have entered into a covenant with death is physically nauseating. I have to think of some snuffy in a hummer reading a piece of legalistic jargon threatening him with dire consequences a few seconds before an EFP from a roadside mine cuts through flak jacket and guts alike.
April 17, 2007 9:09 PM | Reply | Permalink
I have slight misgiving with the concept of most deserving victims, in this case, soldiers. Working poor are shafted everywhere, and the response targetted toward "most deserving victims" is quite imperfect.
It makes me wonder, however, why the soldiers are "easy victims". I thought that they have reasonably good benefits.
April 18, 2007 2:03 AM | Reply | Permalink
Piotr:"It makes me wonder, however, why the soldiers are "easy victims". I thought that they have reasonably good benefits"
I wish it were so.
An 18 and a half year old married E-3 with a kid is often on food stamps because his salary doesn't cover the basics. And that young E-3 doesn't know much about money management, budgeting, saving etc.
He has probably bought a used car from a shady dealer near the base who disguised the over-pricing in the finance terms. His 18 year old wife knows almost nothing about the financial aspects of running a home.
They find themselves out of cash on the 19th of the month and go down to the payday lender outside the base gate. And it is all downhill from there.
To make matters worse, the payday lenders often employ off-duty NCOs to market their services. To the 18 year old E-3, his first sgt is the fount of all knowledge about the wider world. If "top" says that payday lending is the "way to go" - our young soldier believes him.
The even greater tragedy is that the company CO - a young college educated Captain - knows better, but doesn't take the time and effort to counsel his troops.
And further up the line, flag ranked officers block efforts to install Pentagon policies regulating this sort of thing, doing so with an eye to their post-retirement employment prospects. I began my respose to Elizabeths' piece with the observation that this state of affairs saddens me.
I wish more people cared about these young men and women. They take great risks on our behalf and we owe them some degree of protection from the more visceral and predatory dimensions of American society.
Professor John Stuart Blackton
April 18, 2007 6:11 AM | Reply | Permalink
Professor Warren,
Another outstanding post keeping readers aware of the insides of the credit card industry's greedy black heart. Your posts are excellent and I think people often don't comment on what they strongly agree with.
What I hope is taking place is that folks are taking your well-researched reports and linking to them from other sites, recommending other sites link to them, and otherwise spreading the word. The nation needs to develop an immunity to the guilt, psychological arrogance and presumption that the credit card companies use against people who have no idea how they work.
I'll preface the following with this comment: obviously, individuals have a duty to do all that they can to avoid bad financial decisions. That's a given. But credit is a bit like cigarettes -- the offered short term relief plus the high interest and the nicotine are analogous. Both disable the free will of the user (combined, they almost take it away -- see the working poor on break from their job shifts puffing away).
Credit card business is also parasitic. What work do credit card companies do except feed off someone else's hard earned money; whether they're lending from it or collecting it, the credit industry completely depends on the value-producing hard work of others to keep itself at the table eating 24 hours a day. When it loans out the blood it just sucked, it finds new hosts. Then it consumes away but produces very little.
The parasite transmits a disease called despair. Financial problems blow-up marriages, hurt kids of divorce, deny children, and sometimes weigh heavily in people's decisions to abort their unborn. There is a substantial and significant responsibility for these losses that lies with the credit industry. The cause doesn't have to be proximate; the wrongs can be inchoate; and the suffering doesn't have to be legally compensable for it to be 100% WRONG. It is a species of slavery, no matter how well dressed in lobbyists' clothes.
It is also a species of treason. If you do something to damage your country that slows productivity by draining money for a non-productive industry, then you are working against the interests of the country. Just because you employ lots of folks to help you do it doesn't make it a productive industry; that just makes it sort of cannibalistic.
If you're not personally affected, but reading this, consider taking some extra step for the people who are so afflicted, and start a small fire in your neighborhood against credit industry abuse.
April 18, 2007 9:05 AM | Reply | Permalink
I agree with the professor wholeheartedly. The benefits that the military used to have, and that we remember, have eroded to a great extent and negatively impact the lives of the families of our military.
The number of military wives who are on WIC to get food benefits significantly overwhelms anyone on food stamps.
Military health benefits were significantly eroded during Bush 1, under SecDef Cheney. Co-pays exist where they never did before. Our daughter could not come to our house to have her baby (where she had more social support), since she did not have time to un-enroll in her military healthcare region and re-enroll in ours. This requirement to change regional enrollment leaves gaps in coverage for families even at the time of reassignment! Again, all thanks to changes begun under Cheney.
Bargains are no longer significant at the BX and PX. Often, the savings are limited to no sales tax and maybe a slight discount. Military families shop at Wal-mart and Target in large numbers, just like everyone else. There are still some deals at the commissaries.
Talk about being nickel and dimed!
Once upon a time, the benefits were a meaningful addition to low military salaries. Now, especially for enlisted men and women, it's just another low-paying job, and for the rest of this country, a national disgrace.
Ann Hewitt Worthington
April 18, 2007 8:24 PM | Reply | Permalink
I used to be IN the military, and those a-holes saw me coming down the street from a mile away. I have since cancelled ALL my credit cards, and it's my intention, however foolhardy, never to hold any more such debt instruments. I think that all branches of the service should step forward with plans to thoroughly educate all their servicemembers about predatory lending, as well as giving them the option to 'kill' their credit-worthiness, which would provide protection against a lending industry that's basically been allowed to run amok for some time now. There's a reason those credit card applications, those 'pre-approved' ones, run 6 pages of micro-print: The intention is to baffle and obfuscate, and disguise the nature of the business agreement you're entering into. If they can have drug-free zones around schools, they should also have pawnshop-free zones around military posts. Legitimizing loan sharking by forcing its' practitioners to wear suits doesn't make it any less deleterious to the financial standing of either servicemembers or just plain old regular people.
April 19, 2007 2:27 AM | Reply | Permalink