I have a longer post up at The Atlantic’s Business Channel, titled Consumer Financial Protection for Our Military. I hope you check it out!
It’s the story about a wave of consumer financial protection initiatives brought about in 2005-2006 by the Department of Defense and several Republican Congressmen for members of our military. Service members get hit pretty hard by scammers, and military bases are surrounded by payday lenders, so several Republicans, on the advice of the DoD, set out to find a way to combat it.
I find it fascinating because, for better or worse, the DoD doesn’t need to worry about campaign donations from the finance industry, or credit card companies, and the executives have their own post-government career to cash into (military consulting, Blackwater) so they don’t need to make sure they can get a job at Goldman once they leave the Fed or the SEC. So they can say whatever the hell they feel like about financial issues.
Spoiler: The DoD’s suggestion = consumer education is necessary but not sufficient. Educate servicemen, but chop off the worst examples of the payday market. So right now its illegal to offer a Service member’s or his or her family a loan with an APR greater than 36% (including fees). Take that, usury! (Lawyer arbitrage: have any lawyers sued a bank when a Service member has gotten hit by overdraft fees which are greater than 36%? I’m not a lawyer at all, but I’m just sayin….) You also can’t waive rights for legal actions, there needs to be proper disclosure of fees into APR. Several Republican Congressmen turned these suggestions into law with broad bipartisan support. Reporter arbitrage – call them and ask them why they do or do not support the CFPA initiative proposed by the President when it is far, far more watered down than what they’ve already passed for Service members. (I did a for a few, and got call backs pretty quickly! They are waiting to see the final bill out of Committee.)
Honestly, if I was a Republican, on day one of the CFPA discussion I would have said: “Look we already did this for the military. We take the 5 worst things that payday lenders do and make them illegal, and then put a cap at 36% interest. Done. We don’t need another government agency that can be corrupted – better strict rules that are easily enforceable.” If they threw in some catnip for me – say banned prepayment penalties, and created a research team, so we could have good data on what goes on with consumer finance from institutions rather than having researchers data-mining spending diaries while praying to the asterisks gods, asking that they rain many asterisks on their t-statistics with their next guess at a model – I could have seen myself being more on board.
Instead we get 1 Republican voting that we need to put OTC derivatives on an exchange. Great job, GOP.