President Obama 3Looking for something to restore your faith in our government? Then check out the new rules adopted yesterday by the Obama administration to clamp down on predatory lenders who take advantage of American servicemen and women.

The new Department of Defense rules, which were announced Tuesday by the President in a speech to the Veterans of Foreign Wars, update the Military Lending Act—a 2006 law that capped interest rates and add-on fees to members of the military and their families at 36 percent.

Unfortunately, the original 2007 regulations implementing the law capped rates for just a small number of loan types, such as payday loans of 91 days or less and so-called “car title loans” of 181 day or less. Since that time, sharks have evaded the rules by simply extending the terms or restructuring the loans — thus allowing them to continue to target service members (something that often impacts their security clearances and even jeopardizes their careers).

Happily, the new rules take big step toward putting an end to these evasions in that they:

  • Apply market-wide to all high-cost credit products that target service members, including payday, auto title and installment loans designed to evade the 2007 protections;
  • Cap interest and add-on fees at 36 percent for loans issued to service members and their dependents;
  • Prevent lenders from using junk fees such as credit insurance, debt cancellation or debt suspension to circumvent the 36 percent interest and fee cap.
  • Preserve service members’ access to the courts by prohibiting forced arbitration agreements;

Research by the Department of Defense released last year found that as many as one out of every ten enlisted serviceman and woman continued to be targeted by high-cost credit designed to evade the Military Lending Act. DoD estimates that the final rule will reduce involuntary separation caused by financial hardship, resulting in a savings of $14 million a year or more.

The rules come as a particular boon to North Carolina, home to tens of thousands of active military personnel and one of the nation’s largest military populations.

Of course, the obvious next step for federal regulators in the years ahead is to extend the protections now afforded to active military personnel to all individuals affiliated with the military and, eventually, all American consumers period. Let’s get to work.


Payday loans.jpgThe federal Consumer Financial Protection Bureau is unveiling some long-awaited proposed rules targeting the predatory payday lending industry at a big hearing in Richmond, Virginia today and you can follow along on Twitter at the hashtag #StoptheDebtTrap. Generally, the proposed rules amount to a promising start. There are, however a few worrisome potential loopholes. The good people at the Center for Responsible Lending explain:

Consumer Financial Protection Bureau to Limit Payday Loan Debt Trap; Curb 400% Interest Rate Loans

The Consumer Financial Protection Bureau will offer a first look at where the agency’s efforts to rein in the abusive practices of payday and car title lenders are headed at a Thursday hearing in Richmond, VA. The consumer agency will release information outlining their deliberations and take testimony from a panel of consumer and civil rights advocates as well as industry representatives.

Mike Calhoun, President of the Center for Responsible Lending, will present testimony at the hearing.

Calhoun comments on the proposal:

“The proposal endorses the principle that payday lenders be expected to do what responsible mortgage and other lenders already do: check a borrower’s ability to repay the loan on the terms it is given. This is a significant step that is long overdue and a profound change from current practice. If made mandatory, the ability to repay standard will help millions of borrowers avoid dangerously high-cost payday and other abusive loans. The requirement would prevent debt traps, an all-too common practice where a lender flips loans over and over and the consumer ends up paying double the amount borrowed in interest and fees. And the Bureau appropriately applies the standard to both shorter and longer term loans, including vehicle title loans.

At the same time, we are deeply concerned about provisions in the proposal, the so-called “debt trap protection options,” which would in fact permit payday lenders to continue making both short- and longer-term loans without determining the borrower’s ability to repay. The industry has proven itself adept at exploiting loopholes in earlier attempts to rein in the debt trap. The consumer agency can look to necessary revisions to the Military Lending Act after widespread abuses were found, dragging active service members into debt so damaging that a Defense Department report found it undermined military readiness.

These “options” are an invitation to evasion. If adopted in the final rule, they will undermine the ability to repay standard and strong state laws, which give consumers the best hope for the development of a market that offers access to fair and affordable credit.

We urge the consumer bureau to adopt its strong ability to repay standard without making it optional.”

Let’s hope the regulators are listening.

Photo: MoneyMutual

Photo: MoneyMutual

There is another small ray of good news today in the long-term battle to rid the nation of the predatory scalawags in the payday loan racket. After years as serving as the well-compensated barker for the sharks at MoneyMutual, TV pitchman Montel Williams has announced that he will stop endorsing the company. The announcement came just a day after the New York Department of Financial Services announced a settlement with owners of MoneyMutual that prohibits the company from doing business in New York and requires it to pay a $2.1 million penalty. Give you any ideas, Attorney General Cooper?

This is from the settlement announcement:

Superintendent [of Financial Services Benjamin] Lawsky said: “Using Mr. Williams’s reputation as a trusted celebrity endorser, MoneyMutual marketed loans to struggling consumers with sky-high interest rates – sometimes in excess of 1,300 percent – that trapped New Yorkers in destructive cycles of debt. The company made special efforts to target the more than 55 percent of their customers who were ‘repeat clients’ – including so-called ‘Gold’ customers who took out a new loan to pay off a previous loan. We are pleased that they have agreed to resolve this matter and stop marketing these illegal, usurious loans to New York consumers. Our investigation into the lead generation industry continues.”

Today’s MoneyMutual agreement is the first successful enforcement action against a payday loan “lead generation” company penalizing it for its unlawful conduct. Lead generation firms do not typically make payday loans directly, but instead set up websites marketing those illegal loans. Through promises of easy access to quick cash, the lead generation companies entice consumers to provide them with sensitive personal information such as social security and bank account numbers, and then sell that information to payday lenders operating unlawfully in New York and other states. In December 2013, DFS issued subpoenas to 16 online “lead generation” firms, including Selling Source/MoneyMutual, which were suspected of deceptive or misleading marketing of illegal, online payday loans in New York.

Let’s hope state officials keep Selling Source (aka “MoneyMutual”) on the run and that, at some point, Mr. Williams offers a public apology to the thousands upon thousands of vulnerable Americans he’s helped connect to these sharks. We won’t get our hopes up, though, that he returns the gazillions of dollars he’s no doubt been paid or, better yet, donates it to a worthy cause.


Predatory loansIn case you missed it over the weekend, the New York Times ran a thoroughly logical editorial that rightfully called for federal regulation to crack down on the scam artists who sell payday loans and other similar debt traps in numerous states across the country.

As the editorial rightfully notes, it’s all well and good to propose and enact laws like the “Military Lending Act,” which seeks to prevent our military personnel from getting caught up in these rip-offs, but the same logic obviously applies to other vulnerable consumers as well:

“Poor and working-class people across the country are being driven into poverty and default by deceptively packaged, usuriously priced loans. The obvious solution is a national standard for consumer lending. Both the House and Senate have bills pending that would adopt the 36 percent standard for all consumer transactions, including those involving payday loans, mortgages, car loans, credit cards, overdraft loans and so on.”

And while North Carolina has done a better job than many states in protecting its citizenry from the scammers, there’s plenty that comprehensive federal regulation which sets a ceiling on rates would do to benefit us — not the least of which is the way it could cut back on the flood of money spent by the loan industry on buying political influence and corrupting our politics.

The bottom line: What’s good for protecting our service members is good for protecting all consumers. If Congress had even a smidgen of courage, it would enact such legislation ASAP.



Fort BraggThere’s word from the General Assembly that the consumer finance industry is unhappy with state law designed to help protect active members of the military from exploitation. In case you’ve forgotten, the consumer finance industry runs more than 400 storefront shops throughout North Carolina that make loans featuring high interest rates and fees. The loans are often packed with junk insurance products and customers are also routinely “flipped” from one loan to another.

The provision at issue (G.S. 53-180.1) was enacted last year as part of legislation that gave the industry the authority to significantly raise the amounts it charges for loans. While failing to protect the rest of us from these predatory lending practices, the General Assembly was shamed into including some modest protections for military service members, whose paychecks are often targeted by the industry. The provision requires lenders to make sure that they do not extend loans to lower ranking enlisted personnel without at least notifying their commanding officers. It also prevents lenders from trying to collect on loans via phone or email from service members or their spouses while the service member is deployed to a dangerous area.

Now, less than a year after the protections were enacted, it appears that at least some lenders want the law (or its enforcement) weakened. For some time, it has been rumored that industry lobbyists have been working on such an effort and recently, insiders report, an industry representative confirmed the rumor.

In addition to raising the real prospect that junior service members could be exploited before heading off to Afghanistan or some other dangerous venue, such a potential change also raises important political issues in the Senate race between Senator Kay Hagan and House Speaker Thom Tillis. Read More