• Military Lending Act: Let's Just Throw that Baby Out with the Bath Water
  • March 23, 2015 | Author: Maurice L. Shevin
  • Law Firm: Sirote & Permutt, P.C. - Birmingham Office
  • The CFPB has joined in the fray over the expansion of the Military Lending Act's application to traditional installment lending.

    No doubt, you recall the implementation by the Department of Defense of a limit to 36% on the “Military Annual Percentage Rate” (MAPR) that could be assessed to members of the military and their dependents—“Covered Borrowers”—on payday loans, title loans and refund anticipation loans. The 36% cap actually is much more stringent than applying a 36% limit under the traditional APR computation, because the DOD's creation of the “Military APR” brought within it a number of ancillary products—not included within the Truth-in-Lending Act's definition of APR.

    The impact of this restriction has been greatly felt by Covered Borrowers. It effectively shut down such loans to the military. However, a number of payday lenders, title lenders and refund anticipation loan lenders have attempted to “morph” their products into something that looks more like a traditional installment loan to circumvent the restriction. Regrettably, the DOD and now the CFPB have decided to throw the baby out with the bathwater. Rather than distinguish traditional installment lending from these “morphed” products, they want to apply the 36% MAPR to traditional installment loans.

    Traditional installment lenders know that they cannot make small dollar, short term loans at 36% APR, much less 36% MAPR. The economics of the business will not sustain such loans to Covered Borrowers. The effect of the proposed change to the Military Lending Act will be to make legitimate installment loans unavailable to those military families who are most deserving of such loans.

    The fact of the matter is that loans that are
    • underwritten,
    • fully amortized with no balloon payment and
    • do not require a customer to give the lender access to the customer's checking account,
    are not the problem—and these characteristics describe a loan product that should be readily available to Covered Borrowers for their personal, family and household purposes.

    The availability of such loans to Covered Borrowers is going down the drain.