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®: CRE Regulatory Action of the Week

DOD Exemption of Credit Cards From the 36% Interest Cap
Congress passed a law plainly stating that military personnel and their dependents cannot be charged interest rates over 36 percent a year including all fees. The statute applies to all providers of consumer credit including payday lenders and credit card companies.

Despite Congress’ clear statement that the interest rate cap applies to all lenders, the Federal Register notice requesting comments on the rule states, the “Department of Defense views this requirement as an opportunity to ensure the protections included in the statute do not create unintended limitations on Service members and their families obtaining favorable credit products.” A coalition of thirty-three military organization oppose any exemptions and told DOD to apply the rate cap and related protections “to all lenders and lending institutions.”

Why DOD would be seeking “opportunities” to exempt certain types of lenders, such as credit card companies, from the Congressionally-mandated interest rate cap is a mystery as it makes no sense from a policy or economic perspective. If interest rates over a certain level are injurious to service personnel, then they are injurious regardless of the financial institution making the loan. Recognizing that creating an exemption for credit cards makes no sense, the American Bar Association told the Pentagon, “we oppose any efforts to carve out from the law any exemptions for financial institutions whose products would otherwise violate the terms set by Congress and the Secretary.”

CRE’s Memorandum of Law demonstrates that DOD has no legal basis for exempting credit cards from the 36 percent interest rate cap.

  • See CRE Memorandum of Law
  • See The Military Coalition comments
  • See American Bar Association comments
  • See BNA’s Banking Report article