Matz to DOD: Don’t go loco on payday loan reforms
by: Henry Meier
No one celebrates Cinco de Mayo like the Irish, so it’s only natural that NCUA Chairwoman Debbie Matz went to Ireland to ratchet-up her spot-on criticism of the Department of Defense’s well intended but ill-conceived proposal to cap most consumer credit at a military APR of 36%. The proposal sounds nice, but as she made clear in her speech before a gathering of the Defense Credit Union Council’s Overseas Subcommittee, it would do more harm than good when it comes to providing credit union services to members of the armed forces.
As I explained in a previous blog, the military is concerned about continued lending abuses. It argues that there are too many ways to get around restrictions on Payday loans, vehicle title loans, and refund anticipation loans. Its solution is to cap the APR on most consumer loans to active duty military personnel at a military APR of 36%. That means that there would now be a regular APR and a Military APR (MAPR). The MAPR would be calculated differently than the regular APR. It would include certain fees currently excluded from the calculation of APR under Regulation Z.
Just how restrictive is the proposed APR calculation? As Matz explained in her speech yesterday “We have done the math and found that when fees are included, many credit unions’ short-term loans would exceed the 36 percent Military APR limit. Unfortunately, the Military APR limit would be violated even using what we know are reasonably priced products designed to provide affordable alternatives to predatory loans.” This means that the payday loan alternatives offered by credit unions such as Pentagon Federal would violate these regulations. Is this a good thing? Only if you don’t want members of the armed forces to get access to reasonably priced credit.
continue reading »
