Ferguson joins other state AGs in wanting DOD to bolster military lending regulations

By Jessica M. Karmasek | Jun 25, 2013

OLYMPIA, Wash. (Legal Newsline) -- Washington Attorney General Bob Ferguson and a group of 12 state attorneys general are urging the U.S. Department of Defense to bolster federal Military Lending Act regulations.

Ferguson said the regulations need strengthening to better protect servicemembers from abusive lending practices.

"As someone who comes from a family of veterans, I am proud the Office of Attorney General supports and stands up for our military personnel and their families," the attorney general said in a statement Monday.

"Strengthening the protections under the Military Lending Act will help make sure those who defend our country are guarded against predatory lenders."

Ferguson joined the 12 other attorneys general in submitting a bipartisan letter to the DOD in response to proposed new rules under the MLA. The other AGs signing on include California, Delaware, Florida, Illinois, Indiana, Kentucky, Montana, Nevada, New York, North Carolina, Oregon and Tennessee.

In 2007, Congress passed the MLA, establishing a 36 percent cap on interest and fees on certain consumer credit transactions with servicemembers.

However, the DOD's regulations currently limit the protections to three narrow definitions of consumer credit:

- Payday loans (only covering loans of up to $2,000, for a term of 91 days or less);

- Vehicle title loans (only covering loans for a term of 181 days or less); and

- Tax refund anticipation loans.

Ferguson explained that to evade MLA regulations, some predatory lenders have changed practices to structure their high-cost loans fall outside the narrow MLA definitions of consumer credit.

For example, he said, lenders offer loans starting at $2,001 or require a minimum repayment period of 92 days, allowing them to avoid the 36 percent interest rate cap.

In their letter, the attorneys general stressed that the protections in the MLA should apply uniformly to all consumer credit loans.

They also raised concerns about a lack of coverage for any open-ended or revolving payday loans.

Ferguson said veterans and military personnel often are targeted by scam artists and unscrupulous businesses -- and there are many reasons why, he said.

Military pay and veterans benefits are a steady source of income, he explained.

Scammers know that servicemembers are held to a high standard for debt repayment, which may make them hesitant to challenge the debt, question shady business practices or seek assistance.

Also, many servicemembers move frequently, so they don't always know which businesses to avoid in a new community, the attorney general said.

"Servicemembers are unfortunately prime targets for predatory lenders," Illinois AG Lisa Madigan said. "The Department of Defense must close the loopholes in the law because those who serve our country don't deserve to be defrauded by predatory lenders."

Madigan and the other attorneys general emphasized that the MLA protections should apply uniformly to all consumer credit loans. The letter raised concern about a lack of coverage for any revolving or open-ended payday loans, bank loans secured by funds on deposit and all retail sales credit loans or similar rent-to-own transactions.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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