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Department of Defense Voices Support For CFPA
By Meghan Musselman

A new voice has emerged in the debate over the proposed Consumer Financial Protection Agency (CFPA). Up to this point, members of Congress, industry representatives, and consumer groups have dominated the discussion over whether and how to create greater protections for consumers in their financial services transactions. Now, no force less than the U.S. Department of Defense has thrown its hat into the ring and offered its strong support for CFPA. In a letter to the U.S. Treasury Department, the Department of Defense highlights that service members rank financial concerns as their second greatest sources of stress, behind only career issues. Because the Department of Defense equates personal financial readiness of service members with mission readiness, the Department supports any measure that would reduce the financial strain currently facing its troops.

In its letter to Treasury, the Department of Defense specifically identified motor vehicle financing as an area of utmost concern. Motor vehicle financing represents the most considerable financial obligation for many service members and, according to the Department, also presents abundant opportunity for abuse. The Department recently conducted an informal survey of its personnel who assist or counsel service members on financial issues. Of those surveyed, 72% reported working with service members over the previous six months who had fallen victim to allegedly unscrupulous or predatory practices in the course of financing a vehicle.

The practices about which the service members complained included: bait-and-switch tactics, falsification of loan applications or other transaction documents, failure to pay off liens on trade-in vehicles, discriminatory pricing, and “packing” loans with overpriced ancillary products or services. Given the regularity with which these troubling practices apparently occur, the Department of Defense argued strongly that a CFPA charged with overseeing the motor vehicle finance industry – which would include both traditional sales finance companies along with “Buy Here, Pay Here” dealerships – would protect service members from these underhanded practices and reduce the stress associated with financial concerns, thus improving military morale.

Treasury responded quickly to the Department’s letter, hosting a Roundtable discussion in March to discuss “the core consumer protection issues facing service members and their families.” At the Roundtable, the Department of Defense reiterated its position that a CFPA would provide much-needed protection for service members and their families, not only with respect to motor vehicle finance, but also in the context of mortgages, credit cards, and so-called overdraft protection. The Department of Defense also noted that a CFPA would rein in nonbank finance companies such as check cashers, credit bureaus, debt collectors and mortgage brokers. In particular, the Department highlighted that junior enlisted service members are an especially vulnerable target for predatory lenders, owing to their youth and inexperience, and therefore are in particular need of protection from predatory or abusive practices.

It remains to be seen how Congress will react to the Department of Defense’s position. In 2006, after the Department expressed similar concerns with respect to certain “predatory” lending practices, Congress enacted the Talent Amendment, which imposed a 36% annual percentage rate cap and other substantive restrictions on most consumer lending to military personnel and their dependents. Although the Department later promulgated regulations narrowing the scope of this law to cover only payday loans, vehicle title loans and tax refund anticipation loans, it remains clear that Congress can and will respond swiftly and powerfully to the concerns of the Department.

Meghan Musselman is an associate in the Maryland office of Hudson Cook, LLP. Basis Points readers can reach Meghan at 410-865-5403 or by email at mmussleman@hudco.com.

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