Members of the military need access to credit too

Screen Shot 2015-05-11 at 1.17.52 PMMembers of the military and their families hold a special place in my heart. My father was a retired Army Lt. Colonel, as is my sister and brother in law.  I entered the United States Coast Guard shortly after graduating from high school and served for ten years.

Over the course of everyone’s life, there are times when we struggle to make ends meet:  the dishwasher stops working, car breaks down, or refrigerator needs repair.

Members of the military are not excluded from these realities.  So, when I heard about a proposal that would single them out and potentially take away their access to safe credit when these things happen, my ears perked up.

Let me explain.  Last year, the Pentagon proposed new rules expanding the Military Lending Act (MLA) that, if implemented, would have a chilling effect on businesses that currently offer affordable credit options for military personnel and their families. The proposal would apply a rate cap to loans that help cover life’s unexpected expenses (such as installment loans) and would require paperwork and man power that could make the cost of offering these types of loans prohibitive.

I spent my early years as a single person living on military bases and many of my young fellow service members and their families needed the services of these loans to establish their credit rating.

While many may never need to take out an installment loan, it is an option that needs to be available to low and middle income borrowers.   Many traditional lending institutions will not lend to borrowers who do not have a credit history.   They do not offer small dollar loans with turn around quickly enough to meet a short term financial crisis. Installment loan providers check a borrower’s income, financial situation, and credit and once approved, have a straight forward approach to repayment, with certain due dates and a payment plan.  The process allows for service members to build their credit while taking care of their financial needs.

If these loan options were not available, unfortunately military members in need would have fewer options in emergencies and may be forced to enter the unregulated market where protections are not in place.  Fortunately, there’s time to make sure the Pentagon gets it right.

The Senate Armed Services Committee will soon consider its version of the National Defense Authorization Act, and can add a provision requiring the Pentagon to study concerns raised over the proposed rule (namely, how it would impact service members access to small-dollar loans) before moving forward.  The House Armed Service Committee narrowly voted to strip this language last week – but that was a mistake that now needs to be fixed.

There are lots of risks to this new policy and very little benefits.  What sounds good on paper, can have many unintended consequences if put into practice. Senator Ayotte and the Senate Armed Services Committee would be wise to support this path forward to ensure military members do not pay the price and inadvertently lose their access to credit in times of need.

Regina Birdsell is the New Hampshire State Senator representing District 19 (Hampstead). For the 2015-16 legislative session Sen. Birdsell is the Chair of the Public and Municipal Affairs Committee and the Vice Chair of the Transportation Committee. Her main legislative priority is to make New Hampshire business friendly again.

Author: Regina Birdsell

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  • Viola K

    To the editor:

    Re “Members of the Military need access to
    Credit too”

    I am writing in response to the above titled article that
    was published in the NH Journal on May 11, 2015 by Regina Birdsell. I totally
    agree with the author that members of the military and all families need access
    to affordable credit.

    in defending installment loans and attacking the Defense Department’s new rules
    to protect military members from unscrupulous lenders, the author wholly
    ignores why changes to the Military Lending Act are necessary nearly a decade
    after it was enacted.

    In short, it’s the loopholes. The original law simply
    capped rates for certain kinds of narrowly defined short-term loans to military
    personnel at 36 percent. But instead of following the law as it was intended,
    lenders jumped in and offered different products – like installment loans –
    that didn’t fall under the narrow definition of “loans” covered by the original
    rule. They are high-cost, irresponsible products purposefully designed to trap
    families, including military families, in a cycle of debt.

    If the author is truly concerned and cares about access to
    credit, she should encourage the Department of Defense to enforce the new rules
    vigorously so that real decent loans – the kind with underwriting standards and
    without triple-digit interest rates – can thrive in the marketplace and provide
    a real alternative.

    Deceptive and abusive payday, installment and auto title
    loans with 400 percent plus interest rates are not just a threat to military
    families, they are a threat to all families and the way the loan sharks found a
    loophole in the first set of rules and just kept making it wider and wider
    shows how they do business.

    I know people in my community who have been hurt by these
    loans and that’s why I am concerned.

    Viola Katusiime

    Manchester, NH