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Defense bill could halt plan to shield troops from abusive loans

By CARTER DOUGHERTY | Bloomberg News (Tribune News Service) | Published: April 29, 2015

WASHINGTON — A provision tucked into the annual legislation that sets policy for the U.S. Department of Defense could imperil a proposed regulation aimed at protecting military members from predatory loans.

Part of the bill targets a rule that would cap interest rates at 36 percent on a broad swath of short-term loans. The department proposed the rule in September after consumer groups alleged that lenders were circumventing a 2006 law that covered a narrower set of loans.

The House Armed Services Committee is scheduled to vote on the authorization bill Wednesday. The provision on lending would require the Defense Department to delay any rules until 60 days after completing a study on how credit regulations have affected troops’ ability to do their jobs.

“It’s unconscionable that members of Congress are now second-guessing the Defense Department on a matter affecting people who defend our country,” Gary Kalman, director of federal policy at the Center for Responsible Lending, said in an interview.

Greg Lemon, a spokesman for Rep. Joe Heck, said requiring a study doesn’t stop anything. Heck, a Nevada Republican, chairs the House subcommittee that drafted the lending provision.

“This provision allows Congress to exercise its proper oversight role of the Department of Defense before it promulgates this rule,” Lemon said in an email.

The department wrote the lending rule in consultation with the Consumer Financial Protection Bureau. In a December report, the CFPB wrote that the 2006 law was ineffective in stopping predatory lending because it focused only on payday loans, debt with high interest rates that borrowers must pay off within a few weeks.

Rep. Tammy Duckworth, an Illinois Democrat, will propose stripping the lending provision out of the defense bill Wednesday, her spokesman, Anton Becker, said.

Bill Himpler, executive vice president with the American Financial Services Association, said his group lobbied Congress for the study. The group represents lenders that would be affected by the department’s proposal, including World Acceptance Corp., Omni Financial Group Inc. and Springleaf Holdings Inc.

“We’ve made our case to the committee that the Pentagon has laid out its plans but hasn’t justified why installment loans need to be in the same bucket,” Himpler said in an interview.

Rules passed under the 2006 law tried to target payday loans by capping interest rates on loans made for $2,000 or less that borrowers had to pay back within three months. The new measure, which hasn’t been finalized, would eliminate both the limit on loan size and duration to encompass more debt.

Bill Urban, a spokesman for the Defense Department, declined to comment on the provision approved by Heck’s panel.

“We still have a long way to go before we have an approved defense budget for fiscal year 2016,” Urban said in an email.

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©2015 Bloomberg News

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