Submitted by Annissa Flores/Isleta Tribe Member and U.S. Army Veteran
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As our nation celebrated Veterans Day and honored those who have answered the call to serve, federal legislation was introduced that would extend financial rules currently preventing active-duty service members and their families from getting the credit they need, to all veterans and consumers. New Mexicans should be doubly concerned as a similar proposal that would restrict access to consumer credit has been considered here at the state level. As the economic impact of the COVID crisis continues to rage and inflation reaches 30-year highs, our elected officials must oppose any legislation that would make things more difficult for military and civilian families alike.
For many members of the military, financial concerns often weigh on them more than their deployments. These financial challenges continue after transitioning to civilian life, as too many veterans report trouble paying bills. Despite good intentions, efforts by policymakers have not alleviated these challenges – and in some cases, have even made things worse. Such is the case with the Military Lending Act (MLA)’s 36 percent rate cap on most forms of consumer loans and credit.
Proponents claimed the MLA would help military members stay out of debt – but it has failed to do that. In fact, twice as many service members are worried about paying their debts today compared to before the MLA’s passage.
The National Foundation for Credit Counseling released a study earlier this year finding that active duty service members were more than twice as likely to take out a cash advance or payday loan in 2020 than in 2019. Service members said they used these loans because there were few other options available. Notably, this is more than a decade after the MLA was signed into law.
To make matters worse, just as H.R. 5974 (the bill to extend the MLA’s rate cap) was introduced in Congress, the Consumer Financial Protection Bureau (CFPB) announced legal action against predatory lenders in Texas that were imposing very high-interest rates on payday loans to active military personnel and their families. This, despite the fact the MLA bans such high rates from being offered to active service members. The agency had already released a report in 2020 showing a “sizeable fraction of young enlisted service members go delinquent on debt payments or have severe derogatories (for example, defaults) on their credit record around the time they leave active duty.”
The mounting evidence is clear. Rate caps on consumer credit don’t work for military personnel and their families, particularly in a time when costs of basic goods – groceries, gas, clothing – are going up due to inflation and economic insecurity continues to loom due to the pandemic.
Here in NM legislators once again are debating a flawed 36 percent rate cap proposal on most consumer loans that were introduced last year. This bill is not needed here as prior legislative action in Santa Fe successfully drove most forms of predatory lenders out of the state, if not out of business. The small-dollar lenders that remain are highly regulated at the state and federal level and fill a niche that New Mexican banks and credit unions do not fill: meeting the needs of customers who don’t have the savings or credit scores but need short-term credit to meet such urgent needs as car repairs before their next paycheck.
As the Greater Albuquerque African American Chamber of Commerce recently noted, the legitimate small-dollar lenders in New Mexico have shown they cannot make a loan at 36 percent for anything less than $2,500, an amount most folks simply don’t need, running the risk that a policy intended to protect consumers from cycles of debt adds more debt to their bottom line. That just doesn’t make sense.
This issue is much more complicated and needs a longer look. Before moving forward on legislation, the issue should be further studied to determine a better way to approach lowering interest rates and enhancing consumer protections in a way that would both protect consumers and ensure that they maintain the access to the credit they need. Additional forms of consumer protection for small-dollar loans may be needed here in New Mexico. But we can and must do better than the MLA given the unfortunate unintended consequences it’s brought to military members. We can’t afford to impose policies that don’t appear to be working anywhere on veterans, their families and every other citizen here in our state.