South Dakota senator wants second look at payday loan cap
November 17, 2006 - Pierre, South Dakota
A coalition of military and consumer groups that persuaded Congress to impose a 36 percent interest-rate cap on payday loans to military members and their families is gearing up to fight the whole issue all over again.
With strong support from the Pentagon, the coalition persuaded lawmakers to include a provision in the 2007 Defense Authorization Act that would limit interest rates on consumer loans beginning Oct. 1, 2007.
The delayed implementation date was intended to give the payday loan industry and military families using the loans time to adjust to the new playing field -- but it also gives an opportunity for the law to change before the cap applies.
Sen. Tim Johnson, D-S.D., who opposed the loan cap, has signaled he wants to use his seat on the Senate Banking Committee to modify or repeal the cap.
In an interview with American Banker magazine, Johnson said the cap "may have a lot of unintended consequences that will go far beyond just the payday industry."
"We are going to have to revisit that issue and make sure that the end result of this legislation isn't to deny military members and their families access to banking services that they've always assumed would be there," said Johnson, who will be the committee's second-ranking Democrat in January, giving him great sway over legislation.
Johnson may feel emboldened, in part, by the fact the chief Senate sponsor of the loan cap, Sen. Jim Talent, R-Mo., lost his re-election bid and will not be around in January to oppose him.
A military association that helped convince lawmakers to impose the payday loan cap, the Fleet Reserve Association, has asked Johnson to reconsider.
In a Nov. 16 letter to Johnson, FRA National Executive Secretary Joseph Barnes said the law shouldn't be changed. "Before this legislation there was no maximum interest rate extended to service members on active duty," said Barnes, who noted that some short-term loans have had interest rates and fees that reach 2,000 percent annual interest.
"Unregulated predatory lenders represent a serious danger to national security and this is a major concern in the sea services' senior enlisted communities because service members experiencing debt related stresses may be less focused on the mission and compromise not only his or her safety, but also that of the entire unit," said Barnes, whose group represents members of the Navy, Marine Corps and Coast Guard.
In addition to the letter, the coalition that pushed Congress to pass the loan cap has put ads in newspapers circulated on Capitol Hill thanking lawmakers for passing the legislation.
In his interview with American Banker, Johnson said a cap on payday loans might interfere with the larger national credit system.
"This time it's military," Johnson said. "Who's to say it isn't going to be widows and orphans or other sympathetic groups in the future?
"We need to address the needs of people who have short-term, low-denominational credit needs, but I fear that the legislation we passed is going to have unintended consequences that were not fully thought through," Johnson said.
Marine Corps Times, Rick Maze, Staff Writer
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