Obama administration seeks more protection for military borrowers

By Susan Heavey WASHINGTON (Reuters) - The Obama administration on Friday proposed changes to current lending rules toward military personnel and their families, to expand protections from predatory practices on a wider variety of loans and financial products such as credit cards. The plan, to be formally issued on Monday, would close loopholes and cover more types of borrowing, including all payday loans, vehicle title loans, tax refund loans, credit cards and open lines of credit, among others. "This proposed regulation ... would help ensure that our service members and their families are as far beyond the reach of financial exploitation as possible," the Department of Defense said in a statement. Its plan would amend regulations related to the Military Lending Act, a 2006 law to curb predatory practices such as high interest rates or lack of disclosures in loans to members of the military, where low wages and long deployments can be an issue. It caps interest rates at 36 percent, among other protections. But in implementing the law, defense officials originally limited it to three types of credit: payday loans for $2,000 or less over 91 days or fewer, certain auto loans for 181 days or fewer, and "closed end" tax refund loans. Friday's proposal follows a July report that found some stores near U.S. military installations have filed numerous lawsuits against service members buying appliances, furniture and other items after they fall behind on their payments. The report, published in July by the Washington Post and ProPublica, found that one company, USA Discounters, won most of its cases when debtors who were stationed in various parts of the world failed to make court dates in Virginia and then garnished their wages. It cited a related loophole in the Servicemembers Civil Relief Act, or SCRA, which aims to allow active-duty military every opportunity to defend themselves against lawsuits. Businesses that provide such credit to military families say they are offering a service to people who would not otherwise qualify for a loan and sue only after all other options fail. Officials with the Consumer Financial Protection Bureau, a federal agency created by the 2010 Dodd-Frank Wall Street reform law to protect consumers, backed the defense plan on Friday. "Those who would profit by charging exorbitant rates to the military have found it all too easy to evade the original intention of the Military Lending Act," said Holly Petraeus, assistant director for the bureau's Office of Servicemember Affairs, adding that some lenders have used the loopholes to charge military families interest rates as high as 500 percent. Last month, the White House announced other voluntary measures by financial lenders related to SCRA aimed at mortgage interest rates and student loans. If adopted, the rules announced on Friday would not affect mortgages. They also would not target so-called "purchase-money" loans like those used to buy cars and other items, the department said. The public has 30 to 60 days to comment before officials finalize the rules. (Reporting by Susan Heavey; editing by Gunna Dickson)