As many of our readers know, CDFIs are set up to provide access to capital in underserved markets. One market segment that is getting increased attention are military families. Policies have been enacted to address the consumer credit needs of this population. The Military Lending Act was enacted by Congress in 2006 as part of the John Warner National Defense Authorization Act for Fiscal Year 2007. The Military Lending Act provides protections for service members and their families by:
- Expressly capping the rate which a creditor may extend consumer credit to covered members of the armed forces or their dependents at no more than 36 percent including fees
- Creating a series of special consumer protections for covered members and dependents.
The Military Lending Act is implemented by the Department of Defense and, pursuant to a 2013 amendment, is enforceable in the same manner as the Truth in Lending Act by the Federal Deposit Insurance Corporation, member banks of the Federal Reserve System, Office of the Comptroller of the Currency, National Credit Union Administration, Consumer Financial Protection Bureau Federal Trade Commission, and certain other specified agencies. However, there is currently a movement in Congress to delay the enforcement of this amendment before the amended regulations can take effect.
Additionally, a 2014 report by the Consumer Financial Protection Bureau has documented a host of abusive tactics targeting soldiers and their families. According to this report, thousands of service members receive short-term, high-interest loans each year. According the research, many of these consumer credit products available on the market today fall outside of the scope of the Military Lending Act, as currently implemented. For example, according to case studies in the report, one military family that took out a $2,600 loan ended up paying back $3,966.84 over the course of a year. Another borrower spent $1,428.28 to pay off a $485 loan in just six months.
At FUND Consulting, we have seen a trend in CDFI product development, with several clients developing and implementing small dollar loan programs to provide an alternative to predatory loans. Based on this report, it is apparent that there is significant need and demand amongst military families for this type of consumer credit product.
Does your CDFI have a small dollar loan product? Does it have special products for those in the military? Have you seen demand from service members?