On January 16, the American Bankers Association (ABA) issued a letter opposing a proposal offered by the Department of Defense to amend the regulations that implement the Military Lending Act.  Although the ABA had already joined other trade associations in a December 18 joint comment letter criticizing this proposal, the organization submitted this latest letter in response to a December 29 study supporting the DOD proposal published by the Consumer Financial Protection Bureau entitled “The Extension of High-Cost Credit to Servicemembers and Their Families.”

As we reported in a post on December 31, this CFPB study highlighted the various ways lending institutions have allegedly been exploiting loopholes in the Military Lending Act to exact inflated fees from military personnel.  The study intentionally bolstered the referenced DOD proposal to broaden the scope of the Act to cover a larger swath of credit instruments, including deposit advance products (DAPs) as well as more types of payday, auto title, and installment loans.

In its latest letter, the ABA outlined what it regarded as the shortcomings of the CFPB study and its accompanying comment letter.  According to the ABA, these deficiencies included:

  • Using flawed statistical methods in concluding that military families were disproportionately exposed to DAPs;
  • Urging coverage of DAPs under the Act without addressing the merits of DAPs or otherwise judging their general usefulness;
  • Inappropriately advocating the broadening of the Act’s scope beyond DOD responsibility and resources;
  • Overlooking the impracticality of applying the military annual percentage rate to “mainstream” financial products; and
  • Ignoring concerns about the ability of DOD to handle the significant increase in inquiries into its database to verify military status that would result if its proposal were adopted.

The ABA maintains that, if the DOD amendments were passed, servicemembers and their families would lose access to “valuable mainstream products that will help them manage their finances as effectively as do members of the general population.”