Attorneys general call for additional predatory lending protections

CEDAR RAPIDS - Iowa Attorney General Tom Miller is calling for additional protection for military service members and their families from unscrupulous lenders.

Miller has joined attorneys general in 21 states in urging the Department of Defense to strengthen proposed revisions to regulations implementing the federal Military Lending Act (MLA) Congress approved in 2007.

Although Iowa doesn't have a large population of active duty military personnel, Assistant Attorney General Kevin McCarthy explained that predatory lenders have preyed on Iowa National Guard and Reserve members when they are deployed.

'It ebbs and flows,” he said. 'We had a much higher number of complaints when we had a mass deployment to Iraq and Afghanistan.”

Under the law, lenders offering payday loans, auto title loans, and tax refund anticipation loans cannot charge an interest rate higher than 36 percent.

However, the attorneys general say some lenders have changed tactics by offering loans nominally secured by collateral in items worth far less than the amount of the loan. In fact, they said, the loans are secured by allotments from the borrowers' paychecks and checking account sweeps that are otherwise banned under the MLA.

The threat is not hypothetical, Miller said. He cited the case of Rome Finance, which attorneys general alleged lured service members 'to purchase household electronics and other items at 300 percent markups through predatory financing” at effective rates of interest far exceeding the 36 percent MLA cap.

In that case, the attorneys general and Consumer Financial Protection Bureau reached an agreement liquidating Rome Finance that provided more than $92 million in debt relief to more than 23,300 affected service members worldwide, including more than 100 Iowans.

One of those who got caught up in the predatory lending, Miller said, was Iowa Air National Guard Staff Sergeant James Wilson, who grew up in Winterset. He bought a computer that, he said, ended up costing him about $5,000 because of the deceptively high interest rates.

Under an agreement reached earlier this year between the attorney general and Rome, the finance company had to forgive Wilson's outstanding balance of $2,500.

The attorneys general's recommendations do not require state legislative or congressional action, McCarthy said. The DoD can strengthen the protections by changing the administrative rules it uses to implement the MLA.