Today is an important milestone week for federal consumer protection policy–the fifth anniversary of Dodd-Frank and the fourth anniversary of the Consumer Financial Protection Bureau. Right now, President Obama, speaking at a VFW hall in Pittsburgh, is announcing another important milestone: new protections for servicemembers against the worst abuses by predatory lenders in the form of regulations implementing the Military Lending Act. But these rules are not a product of the CFPB; instead, they come from a perhaps unlikely source: the Pentagon.
Among other things, the Pentagon's new rules will greatly expand the products and services subject to the MLA's 36% interest rate cap, aligning the Act's definition of "consumer credit" with the Truth in Lending Act. Just as importantly, the rule prohibits creditors from requiring servicemembers to submit to mandatory arbitration–a protection that now applies to the full range of products and services covered.
This is huge step forward. Earlier rules implementing the law, from 2007, had a very diluted coverage formula; those rules were extremely disappointing to consumer advocates and reflected a process captured by industry interests. The new rules are far more protective of the troops, consistent with the origins of the MLA: research showing that payday lenders and other purveyors of fringe financial products deliberately clustered around military bases and a recognition by the Department of Defense that predatory lending to troops actually posed a risk to national security at the height of the Iraq War.
Watch the President's speech here.
