New rules protect military from predatory loans

WASHINGTON (BP) -- The Obama administration has issued new rules strengthening protections for military service members against predatory lending, a problem Southern Baptists increasingly are addressing.

The final regulations, announced July 21 by President Obama, closed loopholes in the Military Lending Act, a 2007 law designed to keep predatory lenders from targeting and abusing United States service members and their families. Households that take out payday loans are about twice as likely as others to include a member of the military, the White House reported, citing a Pew Charitable Trusts study.

Commonly referred to as payday lending, the predatory practice often draws poor people in particular into a debt trap by charging excessive, and often misleading, interest rates. Though an interest rate may be portrayed by a lender as 15 percent, for instance, it actually is only for a two-week period until a person's next payday. The annual interest rate typically is about 400 percent, making it difficult for the borrower to repay the loan. It requires years for some people to pay off their loans.

Southern Baptists addressed the predatory loan industry in a resolution adopted by messengers during their 2014 annual meeting. The resolution denounced predatory payday lending, called for the adoption of just government policies to end the practice and urged churches to provide training in financial stewardship.

In mid-May, the Southern Baptist Ethics & Religious Liberty Commission (ERLC) helped launch the Faith for Just Lending Coalition. The diverse alliance -- which includes Baptists, other evangelical Christians, Roman Catholics and mainline Protestants -- is seeking to increase awareness of predatory lending and to motivate individuals, lenders, churches and the government to help bring an end to the practice.

"The church should be involved in reining in this industry," said Barrett Duke, the ERLC's vice president for public policy and research. "By doing so, we follow the Lord's own example of caring for the poor and destitute."

In written comments for Baptist Press, Duke said "a need for small, unsecured loans" exists, but "the payday lending industry has demonstrated it cannot be trusted to provide this service without government guidance. Everything from the duration of the loan, to the exorbitant interest rates, to the collection processes must be subjected to regulation. To do anything less is to abandon vulnerable, desperate people to a rapacious group of legal loan sharks."

While the new rules announced July 21 affect members of the military, advocates for reform of the predatory loan industry hope the federal government will act soon to provide across-the-board protections. The cap of 36 percent for the annual percentage rate for service members would be a good rule for all Americans, according to the Center for Responsible Lending (CRL).

Mike Calhoun, CRL's president, said the 36 percent cap "is fair and responsible, and a powerful case can be made for applying it to all consumers, including veterans, who are not protected by the rules when they leave military service."

"If the Consumer Financial Protection Bureau also takes strong action later this year to curtail some of the most deceptive and exploitative practices used by payday, car-title and installment lenders, it will go a long way toward slamming shut the debt trap for all consumers," Calhoun said in a July 21 written statement.

Twelve million Americans are trapped annually in payday loans with 400 percent interest, CRL reported. More than 20,000 payday and car-title loan stores exist in the United States, according to the Faith for Just Lending Coalition. Payday lenders also operate online in a country that has a variety of state and local laws regarding the practice.

The Military Lending Act originally applied a 36 percent interest rate to some loans but allowed predatory lenders still to take advantage of military families in some cases. The new regulations act more comprehensively. For instance, they close loopholes that enabled payday loans larger than $2,000 or longer than 91 days, according to the White House.

At its May launch, the Faith for Just Lending Coalition announced the following principles:

-- "Individuals should manage their resources responsibly and conduct their affairs ethically, saving for emergencies, and being willing to provide support to others in need.

-- "Churches should teach and model responsible stewardship, offering help to neighbors in times of crisis.

-- "Lenders should extend loans at reasonable interest rates based on ability to repay within the original loan period, taking into account the borrower's income and expenses.

-- "Government should prohibit usury and predatory or deceptive lending practices."

In addition to the ERLC, other members of the Faith for Just Lending Coalition are the National Association of Evangelicals; U.S. Conference of Catholic Bishops; Cooperative Baptist Fellowship; National Baptist Convention, USA; National Latino Evangelical Coalition; Center for Public Justice; PICO National Network; and Ecumenical Poverty Initiative.

Tom Strode is Washington bureau chief for Baptist Press, the Southern Baptist Convention's news service.
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