The Pentagon has proposed expanding the types of loans that are covered by a 36-percent interest rate cap designed to protect service members from predatory lending practices.
The proposal announced Friday would add safeguards for additional products, such as credit cards, that were previously excluded from the 2006 Military Lending Act, the Department of Defense said. The proposed regulation would continue to exclude mortgages.
“This proposal would shut down the predatory lending to the military that has flourished through exploiting legal technicalities,” Richard Cordray, director of the Consumer Financial Protection Bureau, said in a statement.
Consumer advocates in North Carolina, which has a heavy military presence, also praised the new regulation. In addition to capping the annual percentage rate of interest charged, the rules would also prevent lenders from shifting disputes with service members to arbitration.
“The proposed rule caps rates, expands what is covered, and returns the resolution of disputes to the courts,” said Adam Rust, director of research at Reinvestment Partners, a nonprofit consumer advocacy group in Durham.
In a statement Friday, a trade group for the consumer finance industry said it was disappointed with the proposal.
“Today, the Pentagon moved toward restricting military families’ access to the most responsible and time-tested source of consumer credit,” said Chris Stinebert, chief executive of the American Financial Services Association.
The Pentagon said it reported to Congress in April the results of a survey that showed its troops generally have “sufficient access to safe, low-cost credit.”
The Department of Defense said the proposal would be published in the Federal Register on Monday for public comment.