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The Department of Defense writes aggressive new regulations aimed at predatory lenders

Posted by Stephen on April 13, 2007

BY CHRIS FLORES

In a move that affects Hampton Roads payday and car title lenders, along with tax preparation firms, the military proposed on Wednesday to broadly use its new authority to prevent predatory lending to service members.

Last fall’s defense bill gave the Department of Defense authority to place a 36 percent annual interest limit on loans that companies make to the military. Payday lenders said they eventually would stop making the loans as a result, but the Defense Department also targeted car title lenders and tax refund anticipation loans.

“We can’t afford the 36 percent cap,” said Carrie Cantrell, a spokeswoman for Loan Max, a car title lender that has been growing in Hampton Roads.

The regulations will have a strong impact in Hampton Roads, which the Defense Department has pegged as an area where service members have had problems linked to predatory lending. The military will get significant protections that have been proposed and failed in Virginia.

GA DEBATED ISSUE

The Virginia General Assembly failed to pass bills this year that would have either ended or limited payday loans. Lawmakers also killed bills that would have either blessed car title lending without interest limits or functionally ended the practice.

Virginia is at a stalemate over how to regulate car title lenders, which have been springing up in Hampton Roads alongside payday lenders. The lenders have settled three lawsuits in the past year asserting that their business violates state laws.

Neither the attorney general nor the State Corporation Commission has investigated whether the businesses comply with existing consumer protection laws. Car title lenders give loans at unlimited interest rates in exchange for a title to a car that is already paid off.

Loan Max decided to stop making the loans to the military after the defense bill setting the 36 percent interest limit passed last fall, and has not had to close any stores as a result, said Cantrell. The law applying to car title and payday loans, as well as the tax refund loans, doesn’t go into effect until October.

Congress wrote a broad restriction on making loans to the military, and the rules released on Wednesday narrowed which industries the rules applied to.

“All it did was narrow the scope of what they did last year,” said Cantrell.

SOME MAY STOP LOANS

Advance America, a payday lender that has about 30 locations in Hampton Roads, said last August that it would stop lending to the military. Lyndsey Medsker, spokeswoman for the payday lending trade group, said she doesn’t know of any other payday lenders that made the same move.

“Between now and October, we expect many more lenders to pull out” of loaning to the military, said Medsker.

All the payday lenders will be forced to have customers sign a document starting in October saying they are not in the armed forces. The industry says only 2 percent of its customers are from the military, so the loss of that business shouldn’t force stores to close.

Many of the industry’s hundreds of stores in Hampton Roads are clustered near the region’s numerous military bases. Once they can no longer loan to the military, it will become clear whether these stores can survive without that business.

At tax service firms, refund anticipation loans are common. The loans, which will be effectively banned for the military next tax season, give people their refund money in advance of a refund for a very large fee that exceeds 36 percent interest.

A number of Virginia legislators tried to advance bills this year to cap payday loan interest charges at 36 percent, which the industry fought hard. Del. Lee Ware, R-Powhatan, and Sen. Richard Saslaw, D-Fairfax, pushed for an industry-backed bill that initially advanced.

Gov. Timothy M. Kaine said he didn’t think it would be fair for the military to pay 36 percent, while ordinary Virginians pay 390 percent interest rates. Faced with a Kaine threat of amending the industry-backed bill, the legislature killed it.

Del. Terry Kilgore, R-Scott, sponsored the industry’s car title-lending bill, which would have barely regulated the companies. Another bill from Del. Harvey Morgan, R-Middlesex, who has also tried to do away with a payday lending industry he was instrumental in legalizing, would have capped car title loan interest rates at 36 percent.

The payday and car title lenders have become some of the most generous contributors to Virginia politicians in the last few years.

Chris Flores writes for the Daily Press. The opinions expressed by contributors to Conservative Viewpoints do not necessarily represnet those of Conservative Viewpoints.

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