Two Democratic congressmen are sponsoring a bill that would further stiffen limits on payday loans that target military members or their families, particularly when it comes to federal pensions.
The Annuity Safety and Security Under Reasonable Enforcement (ASSURE) Act, introduced by Reps. Matt Cartwright of Pennsylvania and Gerry Connolly of Virginia, and co-sponsored by two dozen lawmakers, would also protect some other categories of federal workers.
"This is exploitation, pure and simple," Connolly told the Washington Examiner. "We're talking about the targeting of military families, sometimes with one spouse currently serving in Iraq and Afghanistan."
Payday loans, also referred to as a "cash advance" or "check loans," is "a short-term loan, generally for $500 or less, that is typically due on your next payday," according to the Consumer Financial Protection Bureau.
Under the Military Lending Act, passed in 2006 and expanded in scope this year, interest rates for military loans are capped at a 36 percent of the military annual percentage rate. The ASSURE Act would go further, capping rates at "six points above prime," Connolly said.
The Examiner reported in December 2014 on examples of payday lending to military service members that reached rates as high as 300 percent.
"The current rules under the Military Lending Act are akin to sending a soldier into battle with a flak jacket but no helmet. To give our troops full-cover protection, the rules need to be expanded," Consumer Financial Protection Bureau Director Richard Cordray said in December.
"Federal workers, military career servicemen and women, and postal workers spend a lifetime earning a federal annuity," Cartwright said in a statement. "Unfortunately, pension advance companies often prey upon federal retirees and veterans."
"These are usurious interest rates," Connolly said, citing cases of rates as high as 106 percent.
The 2010 Dodd-Frank Act, President Obama's financial reform bill, established the Consumer Financial Protection Bureau. Connolly said the bureau has only so much power, serving as a watchdog for the public and discouraging people from seeking these loans. He said it's unable to set harder caps on loan rates.
"[Predatory lending] has certainly gotten much worse in the last few years," Connolly said.
State governments famously lost billions investing pension funds in private plans in the 2008 financial crisis. Connolly said that pension targeting by these companies in some ways is the new front in that battle.
"While current federal law already prohibits federal and military retirees from assigning their pensions to a third party, many companies [require] the retiree to deposit his or her pension in a separate bank account controlled by the firm," Cartwright said in statement.
Connolly said he and Cartwright have not coordinated with the White House, but the president has made it a priority to crack down on these types of loans as recently as May.
"If you take out a $500 loan, it's easy to wind up paying more than $1,000 in interest and fees," President Obama said in a May radio address.
Connolly's district in northern Virginia includes Marine Corps Base Quantico, a critical military installation known as the "Crossroads of the Marine Corps."
Connolly cited instances of vendors literally setting up shop directly outside of military bases.
Asked to name specific bad offenders, Connolly declined, "I'm not prepared to do at this time," he said.
The bill so far has drawn the support of one Republican co-sponsor, Rep. Walter Jones, R-N.C., a member of the House Freedom Caucus.
Asked about the potentially strange marriage and chances of final passage of the bill, Connolly insisted the issue is nonpartisan.
"This is an American issue, not a Republican or Democratic issue," Connolly said.
Jones is a considered a strong advocate for veterans, and has espoused support for a more restrained and limited American global role than is conventional in his party.
"I would hope it is a common goal for us," Connolly said. "I suppose there is the principle for some of the other side that the government shouldn't have any role. 'Let the buyer beware.' "