Payday Punishment

New lending law

Two congressmen have introduced a bill to limit access to short-term, high-interest loans for former service members and other people who rely on the federal government for pension checks.

The Annuity Safety and Security Under Reasonable Enforcement (ASSURE) Act, introduced by Reps. Matt Cartwright (D–Pa.) and Gerry Connolly (D–Va.), would restrict the terms on which payday lenders, car title lenders, and tax return advance lenders can do business with former federal workers, including postal workers and retired military.

"This is exploitation, pure and simple," Connolly told the Washington Examiner in November. "We're talking about the targeting of military families, sometimes with one spouse currently serving in Iraq and Afghanistan."

The Military Lending Act of 2006, which was updated in 2015, has already capped interest rates on small short-term loans to active servicemen at 36 percent and required extra paperwork and disclosures. And there are existing laws that prohibit individuals from signing over their military pension checks to a third party. But the new law would cap rates even lower and reduce access further.

Unfortunately, passing laws restricting access to high-interest loans won't solve the underlying financial problems that drive service members to use the services in the first place. If loans are unavailable, customers may turn to even less desirable options, such as overdrawing their bank accounts or letting utility bills go unpaid.