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New Interest Rate Bill Could Become Law of Unintended Consequences (CUToday, November 17, 2019)

Sunday, November 17, 2019  
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By Tony Hernandez

The recently-introduced legislation to cap interest rates charged on most loans looks like a promising approach to combating predatory lending practices.  A 36% ceiling sounds fair, right?  What could be wrong with that?

As it turns out, plenty.

The Defense Credit Union Council, the trade association representing more than 25-million consumers belonging to 181 credit unions across the nation, has a great deal of relevant experience with the Military Lending Act (MLA), the federal law upon which the Veterans and Consumers Fair Credit Act is modeled.  And that experience tells us there is more than meets the eye to the MLA approach.  You might call it the “law of unintended consequences.”

First, a bit of background.  Since 2006, when the original MLA was enacted, all financial institutions making loans to active duty service members and their families have been required to abide by a 36% rate cap. The Defense Credit Union Council championed these efforts and worked with the Department of Defense to force predatory lenders off the military installations. Robust financial readiness training, credit counseling, and financial products and services helped seal the breach, which in turn allowed our servicemembers to focus on our national defense and not on harassing phone calls from predatory lenders.  

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