Reed pushes amendment to protect military families from abusive financial practices

A Senate Democrat is pushing an amendment to the Defense authorization bill that would provide additional protections for military families from abusive financial practices. 

Sen. Jack Reed (D-R.I.) introduced a provision Tuesday that would close the loopholes in current law “allowing lenders to charge exorbitant fees to our service members.”

The amendment enhances the Military Lending Act — limiting interest rates at 36 percent for certain payday, auto-title and refund-anticipation loans — because some banks have gone around the law by offering troops products with interest exceeding the 36 percent annual limits, Reed said. 

“We need to stop unscrupulous lenders from targeting our soldiers, saddling them with enormous debt and undermining our national security,” said Reed, a senior member of the Armed Services and Banking committees and a former Army Ranger.

“We need to crack down on abusive lenders and aggressively go after banks that violate the Military Lending Act.”

Reed’s amendment would ensure banks can’t apply new labels on the same exorbitantly high-interest payday loans that the MLA was designed to prohibit.

The amendment would make it clear that the law applies to “open-end” credit as well as “closed-end” credit; would help end the practice of charging high-cost overdraft fees, averaging $34, for each individual debit card transaction that the financial institution approves; and would end the practice of reordering customers’ transactions from largest to smallest to maximize overdraft fees.

The Federal Deposit Insurance Corp. recently advised the financial institutions it supervises not to post transactions in order from highest to lowest, Reed said. But this guidance does not apply to financial institutions supervised by other federal regulators. 

The Military Lending Act was passed following a 2006 Pentagon report that found 17 percent of service members used payday loans and that “predatory lending undermines military readiness, harms the morale of troops and their families and adds to the cost of fielding an all-volunteer fighting force.”