The Military Loans Act caps annual interest on military loans at 36% and provides other guarantees. Now lawmakers are proposing to extend that protection to veterans and others.
Sid Hastings/AP
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Sid Hastings/AP
The Military Loans Act caps annual interest on military loans at 36% and provides other guarantees. Now lawmakers are proposing to extend that protection to veterans and others.
Sid Hastings/AP
Updated at 12:23 p.m. ET
A few years ago, money was very tight for Chasity Wohlford. The Houston resident, who worked a low-paying job, had to travel to Colorado for a family emergency. She says a friend told her, “Oh, go to that payday lender. It’s super easy. But Wohlford found herself in debt after taking out that loan.
The US military realized a few years ago that many service members had serious problems with payday loans and other loans with annual interest rates of 300% or more. In 2006, President George W. Bush signed into law a measure that caps interest rates to protect active duty troops. Now some members of Congress want to extend those guarantees to cover all Americans.
Wohlford says she thought she figured out her loan. She borrowed $460 and she should repay $560. But Wohlford says that while she was going through the paperwork with a payday lender employee, “the lady was talking so fast and going, ‘OK that, and that, and that. “
Wohlford says she was told she could make the payments over the next month instead of a week. But she didn’t realize it was piling up on more interest and fees. She was even further behind. Eventually, she says she had to pay back about $1,200. That’s almost three times what she borrowed.
Digging the hole took eight months. “My rent got behind, my lights got cut once, my cable got knocked out and it went to a collection agency,” she says. “It was just a mess.”
Wohlford eventually went to her employer to ask for money to restore her electricity. “Imagine how embarrassing it was,” she says, “having to go up to them and tell them I can’t take care of my house.”
Chasity Wohlford, a Navy veteran in Houston, said a payday lender charged her nearly three times what she borrowed in just eight months. She is pictured taking part in Women’s Veterans Day in Austin, Texas last June.
Courtesy of Chasity Wohlford
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Courtesy of Chasity Wohlford
Chasity Wohlford, a Navy veteran in Houston, said a payday lender charged her nearly three times what she borrowed in just eight months. She is pictured taking part in Women’s Veterans Day in Austin, Texas last June.
Courtesy of Chasity Wohlford
If Wohlford was an active-duty military, it would be illegal to give him a high-interest loan like this. And in fact, she’s a Navy veteran. But veterinarians are not covered by these protections.
The Military Loans Act caps annual interest at 36% and provides other guarantees. The Department of Defense said “predatory lending undermines military readiness” and “harms the morale of troops and their families.”
Now, lawmakers plan to introduce a bill in the coming days that would extend that protection to veterans like Wohlford, and everyone else too.
“We’re going to expand it to the rest of the country,” says Rep. Glenn Grothman, R-Wis. He joins four Democrats who will introduce House and Senate versions of the Fair Credit Act for veterans and consumers.
“It’s hard to imagine anyone wanting to take out a loan with an interest rate of 150 or 200 percent a year,” Grothman says. “There’s no way it’s in anyone’s best interest, and taking advantage of people who are either desperate or more likely just financially illiterate, is immoral.”
Sources tell NPR that the Democrats who will join Grothman next week to introduce the bills are the senses. Jeff Merkley from Oregon, Sherrod Brown from Ohio and Jack Reed from Rhode Island, as well as Rep. Jesús “Chuy” García from Illinois.
But it is likely that there will be strong lobbying against a nationwide interest rate cap. The American Bankers Association has opposed the idea in the past, and lenders who provide loans at high interest rates are already speaking out in dramatic terms.
“Our estimate is that this will prevent 150 million Americans from having access to credit,” said Mary Jackson, CEO of the Alliance of Online Lenders. She says people need these loans. And yes, she says interest rates are high – averaging over 100% per year for the lenders she represents. But Jackson says that’s justified by the risk lenders take in making these loans. She quotes a world bank guidance document that while rate caps can prevent predatory lending, they can also have unintended consequences.
“Our clients access our loans to solve an immediate problem they have,” says Jackson. “If their car breaks down, it means they can’t get to work, so these loans are very, very helpful.” And she argues that a rate cap would remove access to these loans.
Another industry group, the Community Financial Services Association of America, which represents payday lenders, also opposes the idea of a national rate cap.
“Restricting access to legal and licensed credit does nothing to address the underlying need for low-value loan products and could force millions to seek dangerous alternatives such as unscrupulous, unlicensed lenders, offshore or otherwise illegal,” the group told NPR in a statement.
Consumer advocates say those fears are overblown.
“There are so many other alternatives,” says Graciela Aponte-Diaz of the nonprofit Center for Responsible Lending. “There are loans to credit unions,” she says. “Families are turning to nonprofits, to their churches.” She says some nonprofits give out small dollar loans that most people can qualify for on much better terms.
Aponte-Diaz says there are subprime lenders already lending under the 36% interest rate cap, so they can lend to service members or in states that already have caps. rate. States that have passed rate cap legislation include New York, Massachusetts, Connecticut, Colorado, Arizona and South Dakota.
Aponte-Diaz disputes the claim that an interest rate cap would amount to “redlining” – denying access to credit in minority communities.
“For these guys to say it’s redlining is outrageous,” says Aponte-Diaz. She says payday and online lenders with very high interest rates are “targeting African American and Latino families with these predatory loans.”
She quotes a study by his group who found after adjusting for income, “waste and car title stores were concentrated in communities of color”.
Christopher Peterson is a University of Utah law professor who worked for the Department of Defense to update the Military Loans Act rules five years ago. He has advocated extending the protections and also advised lawmakers on the new bill.
Peterson says a nationwide rate cap would provide “a speed limit on these loans. It’s not that credit would be banned, it would just say, ‘Look, you can’t drive this loan to interest rate of 300% per annum. Why? Because it’s too fast, it’s too reckless, it’s too dangerous. “
It seems like a good idea for Wohlford, who wishes he had never taken this loan. “When I heard about the payday loan, I thought it would be quick and easy,” she says.
If she had known what a mess she was getting into, Wohlford says, she would have borrowed money from friends or family or gotten a better loan some other way.
