Weakening Military Lending Act May Mean Security Clearance Problems

Weakening Military Lending Act May Mean Security Clearance Problems

Almost anyone who has served in the military is familiar with the prevalence of businesses trying to get at a servicemember's hard-earned dollar.

The lures are a steady paycheck and the perceived recourse of a military chain of command to hold these young earners accountable; the money and safety net are too enticing for businesses to ignore. Whether it is car dealerships, furniture stores or electronics stores, this cast of hawks circle our military bases. When servicemembers get into financial straits, there are other businesses conveniently standing at the ready.

Frequently referred to as payday lenders, these businesses provide short-term, small dollar loans to theoretically “hold one over” until his or her next paycheck. The problem is that these lenders charge handsomely for their services. So much so, that borrowers can easily fall into a downward spiral of owing so much to these lenders they are unable to repay the debts.

This phenomenon became such a problem among military members that in 2006, Congress passed the Military Lending Act designed to limit how much these lenders could charge servicemembers in an effort to ensure servicemembers were not being taken advantage of. The Military Lending Act established a 36 percent maximum annual interest rate, to include associated fees. It also set forth requirements for lenders to check whether borrowers were subject to the Act and, if so, provide them with specialized lending disclosures.

The Defense Department states its upcoming release of the Status of Forces report, due to be released to Congress in December 2018, shows the Act has had the desired effect of driving servicemembers away from these short-term lenders.

According to DoD, 3 percent of servicemembers borrowed from payday lenders prior to the Act and approximately 1 percent do so now. This, however, is a dramatically different number than those cited by the financial services industry.

Javelin Strategy & Research asserts that 44 percent of active-duty servicemembers received a payday loan last year, 68 percent received a tax refund loan and 57 percent used a pawn shop, compared to less than 10 percent of the general population.

Security clearance challenges

Indications have emerged that the administration intends to dramatically scale back monitoring and enforcement of the Military Lending Act. This alarmed military service organizations who rallied forces and sent a letter to the White House, the Department of Defense, and the Consumer Financial Protection Bureau imploring the administration to continue its monitoring and enforcing of the Act. As of this writing, none of the agencies have formally responded.

One of the primary concerns MOAA has is the need for servicemembers to maintain financial soundness in order to ensure their continued service. A vast majority of military occupations require security clearances and, although granting of security clearances is based on an evaluation of 13 considerations, over 50 percent of security clearances are denied due to financial considerations. Data from the Defense Office of Hearings and Appeals show that in 2017, about 55 percent of clearances were denied for financial reasons, far outpacing the next most common reason, personal conduct , which accounted for 15 percent. Foreign influence accounted for just 9 percent.

This is more important now than ever. Historically, servicemembers have been investigated for security clearances initially and then again periodically, usually at 5- or 10-year intervals.

After the administration announced that DoD would handle all security clearances as part of the government reorganization, they looked to the Defense Information Systems Agency to develop a “continuous vetting” tool. The tool allows people to self-report information that is fact-checked against data such as financial records. This would replace the manual reevaluation every few years. The continuous vetting process has already been implemented in some areas, but will be fully rolled out on Oct. 1. It is yet to be determined what effect this will have on the problems stated above, but intuition would lead us to believe that more data being checked more often will likely lead to increased findings, not less.

What do you think about the Military Lending Act and its impacts on the military? Share your thoughts with MOAA by contacting legis@moaa.org or calling 800-234-6622.