Protecting Our Military From Predatory Lenders

November 13, 2012 at 7:22 am Leave a comment

According to Gallup, 24% of men and 2% of women in this country are veterans. We often pay homage to those who serve in our military, which is not surprising considering both the sacrifices they make on our behalf and the percentage of people in this country who have served in our military.  But one of the most disgusting commentaries on human nature is the extent to which certain individuals will seek to capitalize on those people serving in our military by ripping them off with higher-priced loans and financing schemes.

For example, a 2006 report by the Department of Defense pointed out that payday lenders are disproportionately situated around military bases in states where payday lending is legal.  And yesterday, New York’s Attorney General Eric Schneiderman announced a settlement with Smartbuy, a North Carolina based retailer that set up a small kiosk near Ft. Drum in Watertown, New York, where it sold electronics to soldiers who signed installment contracts with interest rates as high as 244%.  As part of the settlement, the retailer will no longer do business in New York.  Good riddance.

But ultimately, this is not a problem that can be regulated out of existence.  Where there is money to be made, someone is going to figure out a way to make it, even if it means taking advantage of our armed services.  This is where credit unions can help.  Currently, NCUA has out for public comment an Advance Notice of Proposed Rulemaking in which it is seeking suggestions as to how to improve its Short-Term, Small Amount Loan regulations it promulgated in 2010 in an attempt to offer payday lending alternatives.  Under the program, federally chartered credit unions that offer these loans can charge interest 10% higher than NCUA’s interest rate cap, but application fees for such loans cannot exceed $20.  To date, enthusiasm for the lending program has been tepid, at best, with 372 federal credit unions currently offering such loans with an aggregate balance of $13.6 million.

NCUA deserves credit for seeking ways to improve the cost-effectiveness of its existing regulations.  It notes that credit unions should not be expected to lose money for offering payday lending alternatives.  I would encourage all credit unions that may consider offering such loans under the proper conditions to come up with suggestions to NCUA about ways to improve the program.  The fact is that we are the precise  industry that should be offering payday lending alternatives and although many credit unions already have such programs, much more should be done.  Payday lending alternatives would, of course, benefit many people beyond those serving in the military, but the only way to really deter people who target our underpaid military personnel for predatory loans is to make sure that there are plenty of legitimate alternatives available.

 

 

Entry filed under: Advocacy, Compliance, Legal Watch, Regulatory. Tags: , , , , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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