WASHINGTON — Banks and consumer groups are once again feuding about whether products offered by financial institutions should be included under a cap the Defense Department is implementing on loans to military personnel.
In comment letters to the department, banks argued that they do not offer the types of products targeted by the Talent Amendment, which was enacted last year as part of a defense authorization bill and was designed to curb payday lending at military bases.
"Congress' passage of the payday loan law was intended to focus on abusive lending practices," Kurt Bauer, the president and chief executive of the Wisconsin Bankers Association, wrote in a letter submitted June 11. "These abuses are being perpetrated not by federally regulated insured depository institutions and their affiliates."
But consumer groups said the amendment, which instituted a 36% annual percentage rate cap — including fees — on all loans to military personnel and their dependents, should be implemented as broadly as possible.
"We continue to oppose a blanket exemption for any group of creditors," wrote several consumer groups, including the Center for Responsible Lending and the Consumer Federation of America, in a joint June 11 letter. "Rather than expose service members to a wide array of high-cost products by adopting sweeping lender exclusions, narrowly-tailored price-triggered exclusions would meet the goals" of the Military Lending Act "and balance the needs of service members with the concerns of providers of legitimate products."
The Defense Department proposed in April to implement the cap selectively, specifically targeting payday, refund anticipation, and car title loans. The plan exempted credit card products and small-dollar loan products that borrowers with poor credit can use in lieu of payday loans. Though it did not provide a blanket exemption for banks, the Defense Department sought comment on whether a final rule should provide one.
But banks were also concerned about other provisions of the plan. They objected to the method by which the Defense Department calculated the APR, and argued that the liability protection provision did not go far enough.
The proposal would provide liability protection to a lender if a borrower signs a statement declaring whether or not he or she is a member of the military or a dependent. But if the lender obtains documentation reflecting otherwise, the lender would not receive the liability protection by the signed statement.
Kevin Peck, associate general counsel of HSBC North America, and other bankers said a borrower should be able to rely conclusively on the borrower's signature and retain the safe harbor.
Christopher Curtis, associate general counsel of policy affairs for Capital One Financial Corp., said the military's APR calculation in the proposed rule would present problems because it differs from how the Federal Reserve Board calculates APR. The Defense Department's APR calculation, for example, does not include fees imposed for unanticipated late payments, default, delinquency, or a similar occurrence "if a borrower requests them to be paid separately," Mr. Curtis wrote.
"Two APRs for the same product, in different parts of the communication and surrounded by different disclosures, is unnecessarily complex and contradictory, and likely to be confusing and off-putting," he wrote.
