NOTICE: Don’t minimize veteran loan options
Submitted by Annissa Flores / Isleta Tribe Member and U.S. Army Veteran
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As our nation celebrated Veterans Day and honored those who answered the call, federal legislation was introduced to expand financial rules currently preventing active duty service members and their families from getting the credit they need. need, to all veterans and consumers. New Mexicans should be doubly concerned because a similar proposal that would restrict access to consumer credit has been considered here at the state level. As the economic impact of the COVID crisis continues to rage and inflation reaches 30-year highs, our elected officials must oppose any legislation that would make things harder for military and civilian families.
For many service members, financial concerns often weigh more on them than their deployments. These financial challenges persist after the transition to civilian life, as too many veterans report difficulty paying their bills. Despite good intentions, the efforts of policy makers have not alleviated these challenges – and in some cases have even made matters worse. Such is the case with the 36% rate cap of the Military Loans Act (MLA) on most forms of consumer loans and credit.
Proponents claimed that the MLA would help the military out of debt – but it didn’t. In fact, twice as many members of the military are worried about paying their debts now than before the member passed.
The National Foundation for Credit Counseling released a study earlier this year finding that active duty members were more than twice as likely to take out a cash advance or payday loan in 2020 than in 2019. Members of service said they used these loans because there were few other options available. Notably, this is more than a decade after the MLA Act was enacted.
To make matters worse, just as HR 5974 (the bill to expand the MLA rate cap) was introduced in Congress, the Consumer Financial Protection Bureau (CFPB) announced a lawsuit against predatory lenders. in Texas which charged very high interest rates on payday. loans to serving military personnel and their families. This is despite the fact that the MLA prohibits offering such high rates to active members of the service. The agency had previously released a report in 2020 showing that a “significant fraction of young enlisted service members are in default on debts or have serious derogators (e.g., defaults) on their credit report by the time they are leaving active duty.”
The mounting evidence is clear. Rate caps on consumer credit aren’t working for military members and their families, especially at a time when the costs of basic necessities – groceries, gas, clothing – are rising due to inflation and the economic insecurity continues to loom due to the pandemic.
Here in New Mexico, lawmakers are once again debating a flawed 36% rate cap proposal on most consumer loans that was introduced last year. This bill is not needed here because previous legislative action in Santa Fe was successful in driving most forms of predatory lenders out of the state, if not out of bankruptcy. The small lenders that remain are heavily regulated at the state and federal level and fill a niche that New Mexico’s banks and credit unions don’t fill: serving the needs of customers who don’t have the savings or credit ratings but need short-term credit to meet such urgent needs as car repairs before their next paycheck.
As the African American Chamber of Commerce of Greater Albuquerque recently noted, small legitimate New Mexico lenders have shown they cannot provide a 36% loan for less than $2,500, an amount whose most people simply don’t need to, running the risk that a policy aimed at protecting consumers from debt cycles will add more debt to their bottom line. It just doesn’t make sense.
This question is much more complicated and requires further consideration. Before moving forward with the legislation, the matter should be studied further to determine a better way to approach lowering interest rates and strengthening consumer protection in a way that would protect both consumers and would ensure that they maintain access to the credit they need. Additional forms of consumer protection for small dollar loans may be needed here in New Mexico. But we can and must do better than the MLA given the unfortunate and unintended consequences it brings to the military. We cannot afford to impose policies that nowhere seem to be working on veterans, their families, and every other citizen here in our state.