by Deepak Gupta
Three consumer groups -- Consumer Federation of America, Center for Responsbile Lending, and National Consumer Law Center -- issued a statement today expressing disappointment with the Pentagon's new proposed rules on predatory lending to servicemembers. According to the groups' statement, loopholes in the proposed rules would inexplicably exempt some types of high-cost loans, such as military installment loans, that were specifically criticized by the Defense Department and covered by the legislation.
The statement gives the following examples of predatory loans that would be allowed under the proposed regs:
- Advance America offered an open-end loan in Pennsylvania that included a $149 monthly “participation fee” plus a nominal interest of 6 percent. The effective annual interest on a $500 loan is 364 percent. This would be permitted under the proposed rules.
- Most payday lenders in Illinois now structure their triple-digit interest loans with terms that exceed the 120-day definition of Illinois law. This would be permitted under the proposed rules.
- A sailor reported getting a subprime credit card from a South Dakota bank that imposed $294.60 in fees for $84.85 in purchases after just two months. This open-end credit card cost over 2,000 percent interest. This would be permitted under the proposed rules.
- First Bank of Delaware offers 350 percent internet installment loans through PurposeLoans.com. These loans could be offered to Service Members if the payment period is extended from 6 to 13 weeks under the proposed rules.
- In asking Congress for action last fall, Admiral Charles Abbot, director of the Navy- Marine Corp Relief Society, testified before the Senate Banking Committee that an installment loan from a California company cost a Service member $30,000 to repay $5,000 over a ten year period.