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Pentagon Finalizes Military Lending Rules

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The Obama administration on Tuesday finalized new regulations designed to crack down on high-cost loans to members of the military.

The rules are meant to make it harder for lenders to get around an eight-year-old interest rate cap on loans to active-duty service members. Under the earlier rules, installment loans of 92 days or more and auto title loans of 182 days or more were exempt, and many high-cost lenders continued operating outside the gates of military bases across the nation.

Details of the Pentagon's new rules were not immediately available on Tuesday. A White House fact sheet stated that the rules are being broadened to cover all payday loans, auto title loans, installment loans, refund anticipation loans, deposit advance loans and credit cards.

The White House also said that charges for most so-called add-on products, including credit default insurance, will be counted toward the interest rate cap.


Soldiers with high debt are considered a security threat and, as a result, often lose their military jobs.The Pentagon estimates it loses 4,700 to 8,000 soldiers annually due to financial distress, costing it between $270 million to $459 million, or about $57,000 per soldier.

Financial stress also is a top precipitating factor to military suicide that’s been largely overlooked ever since the military suicide rate began to exceed comparable civilian rates more than a decade ago. The military's all-volunteer force has endured 13 years on a wartime footing through a devastating recession, both of which have contributed to high indebtedness and other financial distress for many soldiers and veterans. The beneficiary of every active-duty soldier who dies from any cause receives a $500,000 life insurance payout and other benefits, potentially acting as an inadvertent incentive to suicide.

In 2013, 479 active-duty troops, reservists and National Guard members killed themselves – most by self-inflicted gunshot wounds or hanging. The official estimate of 22 veteran suicides a day is likely far under-estimated due to lapses in data collection from death certificates. Overall, military suicides account for a disproportionate amount – about a fifth – of all suicides nationwide.


Details of the Pentagon's new rules were not immediately available on Tuesday. Proposed revisions from last September called for broadening the rules to cover many longer-term loans, though auto loans and mortgages were to remain exempt.

The Defense Department's proposal from last fall also required lenders to check a database in an effort to determine whether a loan applicant is a member of the military. That idea drew objections from various financial industry trade groups.

In April, a group of House Republicans tried to force the Pentagon to delay its new regulations. But that effort fizzled when five Republicans on the House Armed Services Committee joined Democrats in opposing a measure that sought to require the Pentagon to study the issue further.

Sen. Jack Reed, D-R.I., a longtime champion of stricter lending rules for active-duty service members, hailed the new rules Tuesday.

"This is a significant win for our troops and their families," Reed, D-R.I., said in a press release. "Predatory lending is a threat to military readiness and therefore our national security, and frankly these commonsense protections are long overdue."

Later Tuesday, President Obama was expected to tout the new rules in a speech in Pittsburgh marking the fifth anniversary of the Dodd-Frank Act.

Kevin Wack is a reporter for American Banker who covers the U.S. consumer finance industry.

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